Market and economic commentary
April 2025

Markets were volatile for most of April due to the aggressive nature of the "liberation day" tariffs.  After the initial shock subsided, most major global markets rebounded and ultimately finished the month near their starting points. 

Canadian and international markets finished the month flat to positive on a Canadian dollar basis. However, a falling US dollar resulted in negative returns for Canadian investors in US markets, despite the late-month recovery of the S&P 500. The Compass Portfolios and ATBIS Pools (the Funds)¹ saw mixed performance over the month, as a weakening USD weighed on US holdings, partially offset by strength in Canadian equities. Up-to-date performance data for the Funds can be found here.

Below are index total returns in Canadian dollar (CAD) terms for April:

Economy

Tariffs took centre stage as the highly anticipated "liberation day" unveiled the highest aggregate tariffs levied on US trading partners since at least the 1930s². It was a disorienting period as the shock and awe policy significantly impacted the global markets. The US reciprocal tariff policy ranged from 10% to 49%, not including existing levies on specific products, notably sparing Canada and Mexico from additional tariffs. Similar to the Trump 1.0 era, China appears to be the real target of these US trade actions. The US ratcheted up trade tensions with China as tariffs rapidly climbed to 145% after China countered with 125%. This sharply curtailed activity between the two nations and acted as a de facto trade embargo. It’s unlikely importers can absorb or pass along doubling prices without consumers balking from either country. Fortunately, after a few iterations, the US gave a 90-day pause to nations outside of China and reduced the tariff rate to a flat 10%.  

The pause has given time for other countries to negotiate deals with the US to avoid the new levies, but has muddied the waters for future economic projections. Backward-looking data for the US has been positive so far, with their jobs data remaining robust despite expectations of some weakening, and inflation continuing to trend downward for now. US GDP for the quarter contracted by 0.3% on an annualized basis, but this was largely due to higher imports, likely driven by companies anticipating the impending tariffs. The uncertainty is generally weighing on economic sentiment, as businesses prefer consistent, or at least predictable, policy environments. Consequently, forward-looking economic indicators are showing a downward trend.

Markets

Global equity markets were volatile over the month, with the US market being particularly turbulent. The S&P 500 initially lost over 11% of its value before recovering nearly all losses by the end of April in US dollar terms. For Canadian investors, however, a decline in the USD versus the CAD saw the US market down just under 4.6% towards the end of April. Much of the decline was broadbased, but the recovery saw the “magnificent seven”³ stocks outperform the rest of the US market. Although earnings expectations for this year have been pared back amid the turbulence in trade policy, they have continued to grow and are expected to end the year higher. Small and mid-cap companies continued to underperform, with their recoveries lagging the larger-cap counterparts regardless of region. This continues to be a drag on the portfolio performance. 

Developed markets outside of the US were more or less flat, if not slightly negative in Canadian dollar terms. Both markets⁴ saw drawdowns of over 10% early in April, but recovered much of that towards the end of the month, likely influenced by the 90-day tariff hold and talks of trade deals. Canadian markets continued to be driven by the rise in gold prices, which peaked at $3,423/oz before falling back to just under $3,300/oz by month end, but still up over 21% on a year-to-date basis. Overall performance within the portfolio’s Canadian holdings was positive, as selection within Information technology (underweight Shopify) and the allocation to small-cap equities contributed to relative performance. 

Interest rates were a focus for April, as bond prices in the US market moved in tandem with equities, especially on the longer end of the yield curve. In a typical scenario of market stress, bond yields would fall (pushing prices higher) as investors seek the safety of bonds. However, fixed income markets fell in tandem with equity markets, raising questions about whether there was flight to other perceived safe havens outside of the US. The USD also fell versus its international peers (falling 4.5% vs the Euro, and 4% vs the CAD) furthering the thought that market participants were flocking to non-US safe havens. Fixed income markets in Canada were more subdued, although similar to the US, mid- to long-term yields rose while short-term yields remained unchanged. The portfolio’s short duration bias proved beneficial this month as long-term yields increased. 

Compass Portfolios Series F1 - Returns net of fees

ATBIS Pools Series F1 - Returns net of fees

¹ Using F series returns

² Economic Research: "Liberation Day" Tariff Announcements: First Take On What It Means For U.S. And Global Outlook S&P Global, 3 April 2025 

³ "The Magnificent 7"—Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla

⁴ As measured by the MSCI EAFE index and the S&PTSX Index