April 2025 - The aftermath of “Liberation Day”

On April 2, the Trump administration set off a powder keg by announcing new tariffs: a “universal” 10% tax on all imports into the United States, followed by targeted “reciprocal” tariffs of up to 145%, particularly against China. This dramatic turn of events, reminiscent of a badly written tragedy, sent shockwaves through the global stock and bond markets. Equity indexes plummeted, the U.S. dollar fell and oil prices collapsed. Over several days, the markets had their worst sessions since 2020. 

But the story didn’t end there. A general panic ensued, followed by a series of appeasement attempts: postponements, exemptions, conciliatory statements. The markets seesawed between dismay and relief; in this atmosphere of extreme nervousness, a word from the White House could make or break a trend, to wit: the markets rebounded sharply on April 9, after President Trump announced a 90-day reprieve for most countries.  

The reactions to this climate of extreme uncertainty were quite different, depending on the region and asset class. U.S. equities were hit hardest, with a historic drop followed by a rebound in the last days of the month. Europe suffered the repercussions of tariffs on automobiles, while Asian countries, especially China, saw their industrial indicators falter under the impact of the new trade barriers. 

Central banks adopted a cautious stance. The Federal Reserve and the Bank of Canada kept their interest rates unchanged, emphasizing the need to maintain leeway in the event of an exogenous shock — an event outside normal economic dynamics — caused, for example,  by unpredictable policy decisions. The word “stagflation” resurfaced, reflecting a monetary-policy conundrum that is now well established: how to contain tariff-fuelled inflation without jeopardizing already fragile growth. 

Sources: Bank of Canada, Bloomberg Finance L.P.

Despite a sharp drop at the beginning of the month, the Canadian stock market managed to limit the damage. The S&P/TSX Composite Index was down only 0.1%, ending almost flat after rebounding in the second half of the month. Its relative resilience was due largely to Canada’s having been spared the “universal” tariffs imposed by Washington thanks to the USMCA free-trade agreement.  

That being said, not everything was rosy. The sharp drop in oil prices — nearly 20% in one month — weighed heavily on the energy sector, the traditional pillar of the Canadian market. In a climate already weighed down by trade tensions, the federal election contributed to the uncertainty.  

As for bonds, Canadian yields rose, reflecting higher inflation expectations linked to trade tensions and a wait-and-see stance by the Bank of Canada, which chose to keep rates unchanged. The FTSE Canada Universe Bond Index fell by 0.6% on higher medium- and long-term yields. 

Wall Street saw movements of exceptional magnitude in April, with some of the most intense declines and rebounds of recent years. The market reacted strongly to the Trump administration’s tariff announcements and increasingly ambiguous economic signals.  

U.S. bond yields also fluctuated widely, initially falling amid cautious sentiment before rising rapidly on inflationary fears. Unusually, the U.S. dollar fell against several major currencies, including the loonie, despite the risk-off environment.  

The nervousness was heightened by Trump’s public attacks on the Federal Reserve, raising concerns about the central bank’s independence. Although Fed Chair Jerome Powell is confirmed in his position, the criticism unsettled the markets.  

At month-end, the GDP figures for the first quarter added a little more pressure. The U.S. economy contracted by 0.3%, its worst performance since 2022. This negative surprise was due in part to a jump in imports in March, as companies built inventories in anticipation of higher tariffs, which inevitably weighed on growth.  

The S&P 500 Index ended the month down 0.7% in U.S. dollars, but the correction was more pronounced for Canadian investors, whose return was -4.7% owing to the decline in the greenback. All sectors ended the month in the red. 

The MSCI EAFE Index ended April in slightly positive territory, with a 0.5% gain in Canadian dollars and a neutral performance in local currencies.  

Europe was affected directly by the U.S. tariffs, especially those on vehicles and some industrial goods, but benefitted from signs of openness to negotiations. In response to the ongoing economic fragility, the European Central Bank lowered its key rate for the seventh time in a row, to 2.25%, while adopting a more cautious tone in response to the international environment. As for Japan, its stable trade relations with the United States and willingness to negotiate a deal reassured investors.  

In terms of sectors, consumer staples, industrials and communication services were the main contributors to the index’s performance. Conversely, the energy sector, which was affected by the plunge in oil prices, and the health care sector weighed on the results.  

Emerging markets were doubly affected: directly by Washington’s tariff hikes and indirectly by the widespread flight to safety. The MSCI Emerging Markets Index returned -2.7% in Canadian dollars and -0.2% in local currencies. 

China found itself on the front line. Excluded from Trump’s 90-day moratorium, it had to deal with tariff hikes of up to 145%. Its economic indicators responded accordingly: export orders fell and growth forecasts had to be revised downward. Even so, the Chinese government is already considering further support measures, including interest rate cuts and targeted fiscal stimulus. 

In contrast, Mexico did relatively well, posting a more stable performance because it, too, is exempt from some tariffs under the USMCA free-trade agreement.