February 2025 Market Commentary

It felt like staring down the barrel of a gun during the month of February, as tariffs loomed over the heads of investors like a dark ominous cloud, ready to burst at the first crack of thunder. If ever there were a catalyst to trigger the markets into a textbook 10-15% correction, any rational thinking investor would surmise the announcement of the March 4th deadline for a 25% tariff on all goods from Canada and Mexico was enough to fulfill that sentiment. As though there was nothing else to discuss, the topic of tariffs could be heard seemingly everywhere, paraded daily by the news, and social media. The dreaded ‘T' word could be overheard in coffee shops, and pubs, and even in the public square – the word ‘tariffs’ was on everyone’s lips. We can also confirm it has been the single most prevalent focus with our client conversations since the beginning of the year. Yet, the markets once again proved to be more resilient than expected. The major North American indices ebbed during much of the month, as volatility increased, but in the final days of trading the markets surged back to finish only slightly lower than January.

The S&P 500 closed -86.03 points lower than the previous month and the TSX was down -139.65 to finish February at 5,954.50 and 25,393.45, respectively. Admittedly, we were surprised by the late month trading surge, which brought both indexes close to break-even. This is not to say that our expectation of a more substantial selloff is justified from any acute concerns, rather an acknowledgment of how investors behave in the face of uncertainty. To be clear, tariffs would certainly impact economic growth and comparing Canada to the U.S. economy, it is the Canadian economy, which is already on shaky ground, that stands to lose the most. One of the most common themes in the economic readings is the ‘stickiness’ of inflation in several economies. There remains some underlying concern that U.S. inflation risk is leaning higher, especially in an escalated trade policy environment, where businesses will most likely pass on to consumers higher input costs arising from potential tariffs.

In the markets, the tech sector has under performed on a year-to-date basis, though this comes from just a handful of the sector’s largest stocks. Interestingly, a significant number of tech stocks are still outperforming, but we continue to expect the sector will grow at a more moderate pace as participation broadens beyond the largest stocks that have led in recent years. In this environment, we prefer to hold a balance of growth and value stocks overall with a focus on high cash flow. In addition, we believe the high-profile growth names that have benefited us greatly in the past, pose the greatest risk of a correction.

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