If anyone believed that Trump’s second term might not be as bad as the first, 2025 has been a rude awakening. I won’t recount everything we’ve heard from the White House over the last six months, we’re all tired enough of hearing nothing but that from mainstream and social media. I will, however, highlight some of the interesting impacts on your portfolio from the beginning of the year. For a more complete rundown of the economic and market returns, Raymond Kerzerho’s Mid-Year Performance Report Letter is a good completement to this blog.
The US stock market reached all time highs by June 30th, despite dropping 19% from the peak on February 19th to the trough on April 8th. After backpedalling on his worst tariff announcements, investors in US stocks seem to be heavily discounting Trump’s ongoing threats. However, the US dollar has borne the brunt of the trade uncertainty. It has dropped by almost 5% against the Canadian dollar since January, offsetting any upside from US stocks for Canadian investors. The US dollar has dropped by about 12%, 6% and 7% respectively against the euro, yen and pound over the same period. [1]
If the US stock market provided no return for Canadians so far this year, the rest of the world’s stock markets have certainly stepped up. As recently as late last year, economists were predicting that the European economy would be starved of growth for decades to come. Lo and behold, the unexpected (but now seemingly obvious) implication of US isolationism is for the rest of the world, and particularly Europe, to re-arm and spend heavily on defense and infrastructure. As such, the German stock market rose 20% in the first half, compounded by the surging Euro. Non-US stocks have provided all the upside in the equity portion of portfolios so far this year, with Canadian, International Developed and Emerging Markets returning 10.2%, 13.2% and 9.5% respectively.[2]
For all the commentary about swings in the US treasury market this year, interest rates have been relatively range-bound. The US 10-year Treasury has traded between roughly 4.0% and 4.8%, albeit with a notable spike shortly after the Liberation Day tariff announcements of April 2nd. [3] The Canadian 10-year bond has traded between 2.8% and 3.5%, which reflects the relative confidence in Canadian debt over US debt that our government has benefitted from for many years now.[4] The generally shorter-term bonds in our portfolios have behaved well, playing their role to stabilize the stronger stock market swings we’ve had to live through, while returning a respectable 2% so far this year.[5]
If you were only to base your expectation on media headlines, you might expect portfolios to be off to a rough start in 2025, but the opposite is true. Depending on the risk, portfolios have gained between 3% and 6.5% in the first six months of the year, net of all fees. A very respectable start to the year![6]
There are always many long-term strategies at play in our portfolios and depending on the year, some work out better than others. This year, bonds and international diversification have smoothed out the kinks and supported portfolio returns. Hopefully, this has made the investment experience a more comfortable one in a time of uncertainty. We can’t change what’s happening in the world, but we can make sure that your portfolio is as robust as possible in the face of whatever the world and stock markets may throw at us.
We are now six months into our partnership with OneDigital, and they’ve done what we expected in joining them: Provided added horsepower to keep doing what we do, but for more Canadians. We are excited to welcome a new team to the PWL platform, who come from the same DNA as the rest of us in providing their clients with evidence-based portfolios coupled with rigorous financial planning. Stay tuned for an announcement soon!
[1] Source: Yahoo! Finance
[2] Source: PWL Market Statistics
[3] Source: Yahoo! Finance
[4] Source: Bank of Canada
[5] Source: PWL Market Statistics
[6] Source: PWL Capital
