2025 GRS Market Update Webinar

April 10, 2025

Sun Life GRS was pleased to host our annual Market Update Webinar on March 27, 2025

Given the fast-paced changes in economic conditions and trade policies, what framework can help investors navigate this complex environment? The engaging discussion ranged across differentiating economic from market forecasts, the potential diverging paths for corporate profits, to possible silver linings of the recent tumult.

Our expert panel provided insights on Canada’s economic “immune system”, the impacts of potential tariffs, and strategies for navigating market uncertainty in both the short and long term.

Participants:

  • Moderated by Angela Maitland, Investment Solutions Executive, Sun Life Group Retirement Services
  • Frances Donald, Senior Vice President & Chief Economist, Royal Bank of Canada
  • Martin Gerber, Director, President & Chief Investment Officer, Head of Asset Allocation Connor, Clark and Lunn Investment Management Ltd.
  • Christine Tan, Assistant Vice-President, Portfolio Management Sun Life Global Investments

You can watch the recording here.

Economic Outlook

Canada's Economic Immune System

  • Canada's GDP per capita growth has fallen significantly behind the United States, creating the largest spread on record.
  • Canada's weak economic “immune system” – low productivity and below potential growth -    makes it more vulnerable to shocks like tariffs.
  • However, there are opportunities for Canada to improve its economic resilience by addressing interprovincial trade barriers and leveraging its natural resources.

Potential Tariff Impact

  • Tariffs create uncertainty that acts as a tax on investment decisions and leads to inventory front-loading in advance of expected tariffs in April.
  • The impact of tariffs depends on factors like currency movements, substitution effects, and government responses.
  • A three-month duration for tariffs is seen as a critical threshold for potential recessionary impacts in Canada.
  • Permanent tariffs would lead to a meaningfully severe recession over the next 1-2 years.

U.S. Economic Outlook

  • U.S. GDP growth has been revised down from 2% to 1.6%, which is significant as 2% is often seen as a breakeven point for earnings models.
  • The U.S. is experiencing a K-shaped recovery, with high-income households doing well while low and middle-income groups struggle.
  • Labor shortages are a significant issue in the U.S., with three retirees for every new entrant to the workforce.

Investment Implications

Market Concentration and Rotation

  • There is a shift away from the dominance of the "Magnificent 7" tech stocks – Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, NVIDIA, and Tesla - towards broader market participation.
  • Earnings growth is normalizing for top tech companies like NVIDIA, leading to a re-rating of these stocks.
  • Emerging technologies like DeepSeek from China are challenging the assumption that only large, well-capitalized companies can dominate AI development.
  • European markets are showing signs of improvement, with better earnings, attractive valuations, and potential fiscal stimulus.

Risks and Uncertainties

  • Policy uncertainty is a major risk, as the end goals of current U.S. trade policies are not clear.
  • There are concerns about the impact of tariffs on corporate margins and earnings.
  • Credit markets may face challenges as the effects of tariffs on cash flows become clearer.
  • The power requirements for AI technology present a long-term challenge that is not yet fully understood.

Investment Strategies

  • In the current uncertain environment, diversification is more important than focusing on specific themes.
  • Quantitative investment models are adapting to rapidly changing market sensitivities and risk factors.
  • Active managers are closely monitoring how companies are adapting to tariffs and potential supply chain changes.

Silver Linings

  • The current challenges may lead to a clearer economic and social identity for many countries, including Canada.
  • Canada may benefit in the long term by being forced to address productivity issues and interprovincial trade barriers.
  • There is growing consensus in Canada on addressing underlying economic challenges like productivity and housing shortages.

Questions? We’re here to help.

Please contact your Group Retirement Services Representative.