Investors should expect more uncertainty in the second half of the year from policy shifts and other changes.DNY59/iStockPhoto / Getty Images
If investors had to choose one word to define the first half of the year, it would almost certainly be “uncertainty.”
The policy chaos from U.S. President Donald Trump’s second term, most notably from tariffs, has led some companies to delay capital expenditures and hiring, and even to stop issuing guidance. It’s held clients back from making major life decisions. It’s forced countries to rethink supply chains, global alliances and defence spending, and led the Federal Reserve Board to hold interest rates.
In markets, the policy uncertainty caused a sharp correction in equities, but the rebound has been almost as dramatic. The S&P 500 index was up more than 6 per cent for the year as of June 30, while the S&P/TSX Composite Index was up more than 8 per cent.
So, does uncertainty even matter?
Bank of Montreal chief economist, Douglas Porter, highlighted the logic-defying nature of the past six months in a report published last week. Among the lessons investors can glean from stock performance this year is that “markets love uncertainty,” he wrote.
“What makes the rapid return to all-time highs especially notable is that many of the sources of uncertainty remain unresolved, including the reciprocal tariff deadline of July 9.”
In an interview with Globe Advisor last week, Lesley Marks, chief investment officer, equities, at Mackenzie Investments, said investors are beginning to view certainty as relative.
“Maximum uncertainty” around tariffs occurred around the time President Trump was showing off a poster board in the Rose Garden on April 2, so a 90-day reprieve, on a relative basis, feels more certain – even as the deadline approaches. Investors have “come to almost get used to this chaotic nature of headlines,” Ms. Marks said.
Naturally, there are some questions as to how long markets can go on like this. Craig Basinger, chief market strategist with Purpose Investments, wrote in a report this week that as stock markets continue to rise, earnings and economic growth forecasts are coming down, straining valuations.
Looking ahead to second-quarter earnings season in a few weeks, Mr. Basinger issued a warning.
“Will the months of uncertainty, which are starting to show up in some pockets of economic data, also show up in earnings this season?” he wrote. “Maybe, but the stock-moving factor will likely be the tone and guidance from company leadership. And given valuations are already at the upper echelon, stumbles may prove painful.”
That means investors should be prepared, although it’s not obvious how. Some of those asset managers brave (or foolish) enough to issue mid-year outlook reports suggested diversifying away from U.S. assets, particularly expensive mega-caps.
The BlackRock Investment Institute said in its report that “elevated uncertainty is a given” as geopolitical fragmentation, AI and other “mega forces” reshape the global economy.
But those forces may also provide the closest thing to certainty in this environment.
Long-term macro anchors that markets have relied on for decades – such as fiscal discipline, inflation close to 2-per-cent targets, confidence in central bank independence and in U.S. assets as a haven – are being challenged, the report said, but the “mega forces offer an alternative anchor for returns.”
That means the geopolitical fragmentation forcing Europe to spend on defence and infrastructure creates opportunities for investors, just as the promise of AI is keeping BlackRock overweight on U.S. equities.
What’s worked in your client portfolios this year, and how are you navigating uncertainty in the second half? Let us know.
– Mark Burgess, assistant editor, Globe Advisor
Must reads
Probate planning: Rising housing costs and a sharper focus on estate planning have aging parents wondering if they should add their adult children to their real estate title before they pass away – a move that could help the asset bypass probate. Brenda Bouw unpacks the pros and cons.
Capacity planning: With many Canadians living well into their 80s and 90s, advisors frequently encounter the issue of diminished capacity, a complex area that requires discretion, protocols, and meticulous record-keeping.
Planning for the worst: As wildfires threaten vast swaths of Western Canada, many clients find themselves bracing for impact. Having a plan in place can ease decision-making and reduce the emotional toll.
More from The Globe
No wink, all nudge: Financial nudges can work because they respect choice, rely on subtle interventions, and align with how some people prefer to engage with money, writes Preet Banerjee. Here are a few clients can try to boost savings.
What to expect: From parental leave to daycare to education costs, children are expensive. Tim Cestnick shares eight financial moves for new and expecting parents.
League tables: Tariff threats didn’t spoil corporate Canada’s appetite for deals and fundraising over the past three months. Stock sales and merger and acquisition activity both soared in the second quarter, while corporate debt issuance saw a drastic drop in April.