With shifting monetary policies, trade tensions, and political developments — most notably Canada’s new Prime Minister Mark Carney and an impending snap election — the next two months promise both opportunities and uncertainties for investors.
The Toronto Stock Exchange (TSX) has shown resilience in early 2025, posting a year-to-date gain of approximately 1.7% as of mid-March, buoyed by optimism around political stability and resource sector strength.
The Bank of Canada’s recent rate cut on March 12, lowering the policy rate to 2.75%, has reduced the prime rate to 4.95% at major banks easing borrowing costs and supporting equity valuations.
However, inflationary pressures linger, with core inflation measures averaging 2.9% annually, prompting some analysts to question whether further cuts will materialize in April.
Some banks are forecasting a mild recession in Canada, citing U.S. trade policy volatility as a key risk which could pressure equities if consumer spending falters.
Stalling stocks
Energy and materials stocks which dominate the TSX, remain sensitive to global commodity prices and U.S. demand. Meanwhile financials benefit from lower rates but face headwinds from high household debt levels and a housing market where average prices exceed $700,000.
Investor sentiment is cautiously optimistic, with the TSX potentially testing 24,000 by April if trade tensions ease. Downside risks persist if U.S. tariffs escalate.
Across the border, U.S. equity markets (the S&P 500 and Nasdaq) found some footing mainly driven by tech sector resilience.
Uncertain times
The Federal Reserve paused rate cuts in early 2025, maintains a benchmark rate around 3.5%, balancing inflation against economic growth. GDP growth forecasts for Q1 2025 sit at 2.5%, but Trump’s tariff threats particularly against Canada introduce volatility.
A central geopolitical story is the escalating trade rhetoric between the U.S. and Canada. Trump has expressed indifference to Canada’s upcoming election outcome but hinted at preferring to negotiate with Liberals over Conservatives, while reiterating tariff threats (up to 25% on Canadian exports).
This has rattled Canadian businesses, given that 75% of Canada’s exports valued at $450 billion go to the U.S annually. Carney has vowed to counter these threats, leveraging his central banking experience to stabilize markets and negotiate with Washington.
His review of a $19 billion F-35 jet deal with Lockheed Martin signals a push for domestic defense production, potentially straining U.S. relations further.
Politics & Polls
Canada’s New Prime Minister and Snap Election Mark Carney, sworn in on March 14, 2025, following Justin Trudeau’s January resignation, has quickly reshaped the political landscape.
The former Bank of Canada and Bank of England governor won the Liberal leadership and now leads a minority government.
Carney is expected to call a snap federal election for April 28, capitalizing on a Liberal polling surge. His platform emphasizes economic action, trade resilience, and climate goals, appealing to voters amid Trump’s tariff saber-rattling.
Carney’s first week showcased his flair, skating with the Edmonton Oilers. His policy focus targets workers and the economy.
Polls from Angus Reid and Leger show him outpacing Poilievre on trade and leadership metrics, reversing a two-year Conservative lead.
The election outcome could solidify Canada’s market stability if Liberals secure a majority, though a hung parliament might spook investors.
In summary, while Canada navigates political renewal and trade headwinds, the U.S. rides a wave of domestic strength tempered by global uncertainties.
Markets in both nations face a pivotal moment, with Carney’s leadership and Trump’s next moves as defining factors.
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