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Canada’s main stock index fell in March as investors turned away from risky assets in light of the looming impact of U.S. President Donald Trump’s global tariffs. This sentiment was echoed in the major U.S. indices, with the S&P 500 experiencing its worst quarterly performance since Q3 2022. The combination of slowing economic data, escalating global tensions, and heightened policy uncertainties led to the unraveling of the “Trump trade,” resulting in heightened market volatility.

The S&P/TSX Composite Index was down 1.9% in March but rose 0.8% in the first quarter of the year. Four of the benchmark’s underlying sectors were positive in Q1. Leading the way was the materials sector, which posted a gain of 19.9%. Small-cap stocks, as measured by the S&P/TSX SmallCap Index, eked out 0.3% for the quarter.

The U.S. dollar remained relatively flat against the loonie in Q1, gaining 0.1% and slightly boosting the returns of foreign markets from a Canadian investor’s standpoint. Note that all returns in this paragraph are in CAD terms. U.S.-based stocks, as measured by the S&P 500 Index, fell 6.2% in March and finished the quarter lower by 4.7%. Consumer discretionary and information technology led the losses, with respective declines of 14.1% and 12.9%. International stocks, as measured by the FTSE Developed ex-U.S. Index, rose 5.1% during the quarter, while emerging markets gained 1.7%.

Canadian investment grade bonds, as measured by the FTSE Canada Universe Bond Index, were up 2.0% during the quarter. The key global investment grade bond benchmark we follow rose 2.7% in Q1 and global high-yield issues were up 0.9% in the same period.

Turning to commodities, natural gas prices rose 7.4% in March and 13.4% in Q1. The price of a barrel of crude oil also rose in March, gaining 2.5%, but fell 0.3% in Q1. Gold, silver, and copper all rose in March, gaining 9.6%, 10.9%, and 11.5%, respectively. They also rose in Q1, gaining 18.2%, 18.4%, and 25.0%, respectively.

Inflation in Canada rose to 2.6% year-over-year in February, above expectations and up from 1.9% in January. The GST/ HST holiday that ended on February 15 played a key role in pushing inflation higher. The Canadian economy created 1,100 jobs in February, as the nation’s unemployment rate held steady at 6.6%. The Bank of Canada cut its lending rate by 25 basis points in March, bringing it down to 2.75%. This is the second lending rate cut by the central bank for 2025.

U.S. nonfarm payrolls increased by 151,000 in February, as the unemployment rate ticked up to 4.1%. The consumer price index rose to 2.8% year-over-year in February, as food prices continued to edge higher. The Federal Open Market Committee kept its key borrowing rate at a target range of 4.25%-4.5%, where it has been since December. Along with this decision, the FOMC downgraded its outlook for economic growth and gave a bump higher to its inflation projection. Officials now see the economy accelerating at just a 1.7% pace this year, down 0.4 of a percentage point from the last projection in December.

Content sourced from Bloomberg; data as at March 31, 2025.

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