Turn investment market challenges into opportunities with a balanced portfolio

President Trump’s policies — including trade tariffs — have the potential to put upward pressure on inflation and keep interest rates higher for longer. This could dampen economic growth and equity market returns. And while the potential strength of the U.S. dollar could help offset any potential sluggishness for those Canadians that invest in U.S. equity markets, a stronger U.S. dollar suggests a weaker Canadian dollar. This could make inflation stickier in Canada through the potential higher costs of some imported goods. But as it stands right now, the risk of persistently high inflation is low.

Arguably the greatest potential challenge to markets and the economy is political risk. This includes the risk of an all-out trade war. In our view, China continues to be the real main target of U.S. tariff rhetoric, while Canada has been a focus recently because the country is seen as low-hanging fruit. Meanwhile, China is viewed by the U.S. as a long-term military threat and an instigator of large-scale unfair commercial practices, and is the main source of U.S. trade deficits. Excluding oil and gas, the U.S. enjoys a trade surplus with Canada. However, as far as the Canadian economy and markets go, tariffs on Canadian goods by the U.S. would certainly have negative consequences for us. One third of Canada’s Gross Domestic Product (GDP) comes from exports and roughly 80% of those exports go to the U.S. 

Across the globe there is a broad and complex range of possible outcomes — including potential retaliation, substitution effects and currency impacts — from the proposed tariffs (PDF, 715 KB) Opens a new window.. All of this is to say there’s a high degree of uncertainty right now, and a prudent investor should stick to their long-term investment objectives.

In times like these, being prepared with a well-balanced portfolio is paramount. You can’t prevent a storm from coming, but you can prepare for it. And right now, the potential paths around the known unknowns should be managed through broad exposure to a diversified set of assets focused on the long-term investment objectives. History demonstrates that a portfolio with a broad mix of stocks and bonds tends to outperform cash, and also outperforms portfolios that try to time markets throughout the cycle.

We prepare our portfolios for adverse outcomes by maintaining a diversified mix across asset classes, geographies and styles in our strategic asset allocation. When the political dust settles, we expect asset prices to return to being driven by fundamental factors such as economic growth, inflation, interest rates and corporate profitability. Until then, having a well diversified balanced portfolio is an optimal way to prioritize investment goals and ensure exposure to a broad range of financially productive assets.

CIBC Asset Management is committed to providing market and investment insights. If you’d like to discuss this market and economic update in more detail, please get in touch with your CIBC representative anytime.