Q1 2025 Market Commentary: How Not Only to Navigate Uncertain Times –– but Make the Most of Them

Anthony Ciccone | CHFC | President at Ciccone McKay Financial Group

The first few months of 2025 have reminded us that change is constant—and often unpredictable. From renewed trade tensions with the U.S. to rate cuts by the Bank of Canada, it has been a fast-moving start to the year for both markets and policymakers. In the face of this uncertainty, it is more important than ever to pause, reflect, and consider how best to move forward.

In the following commentary, Portfolio Manager Matthew Mobilio of Louisbourg Investments offers timely insights into the current landscape—along with some thoughtful perspective on how to stay grounded and make the most of the road ahead.

By Matthew Mobilio, CFA, CFP
Portfolio Manager, Louisbourg Investments

A lot happened in the first quarter of 2025. US President Donald Trump said he was implementing tariffs, then put them on hold – only to re-implement them.

From Passion to Perspective: Cycling and Investing

Back during COVID—like many—I picked up a hobby that turned into a passion: road cycling. With all that’s going on, I’ve realized that road cycling mirrors investing. Both involve long, steady climbs that test your endurance, followed by fast descents that require focus and discipline. Both are full of emotional ups and downs.

In both cases, the key is to stay grounded and not let short-term noise throw you off course. In my 2024 Q3 note, I emphasized the long-term positive trajectory of the markets, regardless of the political party in power. It is short-term noise that can cloud our view of the consistent, long-term past successes.

Understanding Tariffs and the Bigger Picture

Just what is a tariff, and how does it work? Quite simply, it is a tax a government imposes on goods entering the country.
For example, say Canada imposes a 10% tariff on hockey sticks made in another country. If each hockey stick costs $100 for the Canadian importer, that importer will need to pay an extra $10 to have the stick enter Canada. This brings the stick’s total cost to $110. For firms to maintain their margins, they will then pass along that cost to the consumer.

In theory, having tariffs in place protects local businesses and raises money for governments. However, tariffs can lead to economic uncertainty, which we have indeed seen play out in the markets during the first three months of 2025. I would therefore argue that tariffs are prompting Canada to reconsider its trade dependencies and interprovincial trade barriers –– and this could ultimately support an increase in our Gross Domestic Product (GDP).

In the meantime, we have seen the Bank of Canada twice cut the policy rate: on January 29, from 3.25% to 3.00%, then again on March 12 to 2.75%. These cuts were driven by economic uncertainty from US trade tariffs, and by declining consumer and business confidence despite inflation remaining near the 2% target. In the US, the Federal Reserve maintained its interest rates in the range of 4.25% to 4.50%. The big story, the headline-grabber, is that the Canada-U.S. trade war reduced GDP growth forecasts across Canada.  

Canada’s Productivity Challenge

Canada already had an issue with productivity, which the tariff discussion has now illuminated. Since 2015, Canada’s real GDP per-capita growth has declined. The graph below shows our real GDP per-capita growth in Canada compared to the other members of the Organization for Economic Co-operation and Development. The OECD is an international organization that promotes policies to improve the economic and social well-being of people around the world.
One way to look at how we compare to other developed countries is by using real GDP per capita. This measures the average economic output per person, adjusted for inflation, to reflect true purchasing power and living standards over time. As shown below, Canada has been one of the worst-performing developed countries.

 

*Source: OECD Data Explorer

If economic conditions deteriorate due to prolonged trade tensions, we may continue along this path. In that case, the Bank of Canada may implement additional interest rate cuts to stimulate borrowing and investment.

Canada’s response to these challenges should be to enhance its domestic economy by focusing on key areas such as productivity, regulatory alignment and sector-specific support. This would include our resources, e.g., Alberta oil and gas, and Ontario’s Ring of Fire, the mineral development in that province’s far north.

Investing in infrastructure projects and innovation-enabling technologies could enhance productivity and reduce reliance on external markets. Breaking down interprovincial trade barriers could unlock economic potential. Here’s RBC Economics’ take:

“In the face of major uncertainty with Canada’s largest trade partner, its own interprovincial trade barriers — a topic that’s long been a niche economist discussion —are becoming more mainstream conversation. That’s a good thing, because these trade barriers are longstanding inefficiencies that weaken Canada’s economic resilience and limit opportunities for businesses and workers.

“We’ve highlighted before that reducing interprovincial barriers would help Canada’s ailing productivity and general growth challenges. They could even help improve the movement of people and businesses across the country.”
You can read the full report here: RBC Economics: Six questions about the significance of interprovincial trade barriers in Canada.

As Canadians head to the polls this month, it’s crucial to pay close attention to each political party’s proposed economic policies and visions for our country’s growth. Understanding how the various plans may impact Canada’s economy in the short and long term is key to making informed decisions about our future direction.

What is Louisbourg doing?

The current uncertainty has presented opportunities to invest in companies we favour, aligned with our four-pillar investment philosophy. Attractive valuations have made these names compelling, allowing us to continue strengthening our portfolio’s foundation. For investors and investment professionals, it is essential to stay patient and trust the process. As with the challenges of COVID and the interest rate hikes of 2022, we can and will navigate today’s market corrections. They are, after all, a natural part of investing. At Louisbourg we remain diligent in monitoring and evaluating our current holdings based on fundamental analysis.

As we move into Q2, the ever-changing landscape presents many opportunities and challenges. With shifting economic conditions, evolving market dynamics and new developments on the horizon, it is crucial to continue staying informed and adaptable in order to navigate what’s ahead.

Author:
Matthew Mobilio, CFA, CFP
Louisbourg Investments Inc., Portfolio Manager

 

As always, for more information about Ciccone-McKay Financial Group, or if you want to chat with someone at the firm, we welcome your call: 604-688-5262.