U.S. policy uncertainties, Canada’s resilience, & Europe’s growth
February 2025 was marked by heightened uncertainty in the U.S., with disruptive and protectionist policies fueling investor concerns of their impact on growth and inflation, amidst strong corporate earnings season. The new U.S. administration also stoked fear in Canada through tariff threats, but Canadian markets remained rather stable. Investors believe Canada can be resilient with the Bank of Canada’s (BoC) ability and the federal government’s willingness to provide support through policy flexibility, and a strong financial system. Meanwhile, European markets’ outperformance stood out, supported by earnings strength, monetary easing prospects, and strategic trade advantages to withstand U.S. tariffs. Investors sought diversification, rotating to European equities that offer growth at more reasonable valuations, and Canadian markets amid global uncertainty. Mega cap companies lost ground and underperformed the rest of the U.S. market, Tesla fell the most, by -27.6% in February.
The NEI perspective
U.S. policy uncertainty: Increasing fiscal and monetary policy uncertainty in the U.S. has led to heightened market volatility, with investors closely watching economic data for clarity. Bottom line: Policy uncertainty is likely to keep markets reactive, with potential implications for reduced economic growth and heightened risk sentiment.
Canada’s resilience: Despite global headwinds, Canada’s economy remains relatively stable, supported by a flexible monetary policy stance, a strong banking sector, and a weaker currency boosting exports. Bottom line: Canada’s economic fundamentals continue to provide stability, even as external pressures evolve.
Europe’s strength: European markets have benefited from strong corporate earnings, improving trade conditions, and expectations of central bank easing, with key sectors like luxury goods and industrials showing resilience. Bottom line: Europe’s relative economic strength and corporate performance suggest a more constructive outlook compared to other regions.