Global Index Performance
Fixed Income
The Canadian bond market showed resilience in March, and bonds proved their purpose in a well-diversified portfolio by providing principal protection and income amid the heightened volatility in global equities. Later in the month, bond valuations suggested that the Bank of Canada (BoC) may slow the pace of future rate cuts. However, the announcement of ‘Liberation Day’ on April 2nd, where the U.S. announced extensive tariffs on numerous countries, brought about additional questions for the Canadian central bank. As a result, market participants expect the BoC to now adopt a more dovish stance centred on potentially steeper interest rate cuts to counteract the economic impact of these tariffs.
In the U.S., tariff announcements have increased the likelihood of a recession. In lockstep, market expectations for the Federal Reserve (the Fed) to cut rates have risen significantly. Investors may be anticipating further rate cuts, but the Fed is in a tricky spot; cutting rates may undo previous efforts to control inflation, while either raising or failing to cut rates could push the economy into a stagflation environment and recession.
Equities
Canadian equities declined in March, reflecting the broader market’s cautious sentiment amid increased uncertainty. U.S. tariffs amplified this uncertainty as investors were hoping for a mitigated response for our country. The technology sector continued to face significant pressure, while gains in materials, energy, and utilities helped mitigate some of the declines. This performance was a pre-cursor to additional declines coming in early April.
U.S. equities saw a more significant decline in late March and into April, as investor sentiment was dampened by ongoing trade tensions and concerns over the U.S. administration's policy agenda. The technology, consumer discretionary, and communication services sectors were among the hardest hit, while defensive sectors like healthcare and utilities saw modest gains.
International equities outperformed North American stocks once again in March, driven by optimism about potential ceasefire talks between Ukraine and Russia and increased economic spending in Europe. Emerging markets were the sole segment of the equity markets to see positive returns in March, driven by the potential for an ongoing economic recovery in China, growth in the technology sector, favorable demographics, and competitive valuations. Unfortunately, nowhere in the world is currently immune to the rising trade tensions, leading both international and emerging market stocks to significant declines in early April.
Staying Invested Through Market Turmoil
The recent drawdown in global markets, exacerbated by the U.S. administration's announcement of extensive tariffs, has left many investors questioning their current strategies. The heightened volatility and uncertainty have led to a significant decline in global equities. Amid the current turmoil, there may be temptation to sell and wait for a more stable environment. However, this approach has historically been detrimental to long-term investment strategies.
Pain of Trying to Time Market Bottoms
Investing $100,000 in World Stock Market from January 1988 to December 2024
A key reason to stay invested is the risk of missing the market's best days. Data from 1988 to 2024 shows how missing just a few of these days can significantly impact returns. For instance, an initial investment of $100,000 into the MSCI Investable World Equity Index would grow to $1,003,865 if fully invested throughout this period.6 However, missing the 5 best trading days reduces the investment's value to $714,903. Missing the 10 best days further drops it to $555,798 and missing the 50 best days results in a drastic reduction to just $151,431. In terms of rates of return, an investor would go from an average annual return of 6.62% down to as low as 1.16% by missing out on these critical days.
These figures emphasize the value of a long-term approach. Trying to time the market often results in missing these key days, which can greatly diminish potential returns. The best days often occur during, or after, periods of high volatility, making it nearly impossible to predict and capitalize on them without staying invested.
It is crucial for investors to maintain a long-term perspective to navigate through these turbulent times. Given the current environment, we have trimmed Canadian equities further in favour of fixed income and international equity exposure. Fiduciary Trust remains cautious and nimble, as any progress in trade negotiations, tariff de-escalation, or economic stabilization could prompt a reassessment of our equity exposure. By maintaining a diversified portfolio across geographies and asset classes, Fiduciary Trust Canada aims to mitigate volatility while capturing growth opportunities when market conditions improve.
FactSet as of April 7, 2025