‘This too shall pass’: Investing strategies in the time of Trump

'Don’t have a knee-jerk reaction. If the market overreacts, that’s probably an opportunity'

Published Jan 23, 2025  •  4 minute read

Investors tempted to increase their exposure to U.S. stocks because of Trump’s policies should remember the U.S. market has had an exceptional 12-year run, and those kinds of long-term trends do tend to reverse. Photo by TIMOTHY A. CLARY/AFP via Getty Images files

The roller-coaster governance model of Donald Trump is already back on display: he was quiet on tariffs during his inauguration day, only to say later that evening they could be coming by February. The actual plan remains unclear.

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For investors digesting the risks for the Canadian economy and global financial implications, experts say it’s good to stay informed, but not to sweat every headline.

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“A lot of stuff gets said, and a lot of stuff disappears,” said Craig Basinger, chief market strategist at Purpose Investments.

Investors should remember Trump’s first term, and the amount of talk that ended up going nowhere, as well as the policies that were adopted only to be quietly dropped soon after, he said.

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It’s important to have a steady hand approach and remember that the fundamentals of the Canadian and global economy are fairly sound.

“Don’t have a knee-jerk reaction. If the market overreacts, that’s probably an opportunity,” said Basinger.

Purpose Investments hasn’t really changed its asset allocation in light of the United States election, he said, though it’s started to hedge its U.S. dollar exposure because of how low the Canadian dollar has fallen.

He thinks that while there’s the potential for the loonie to fall further, the downside risks are fairly muted. Similarly with the tariff threat — while it’s real, the likelihood of tariffs sparking inflation, along with political pushback, could go a ways to tamping down the potential for tariffs to last.

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Investors tempted to increase their exposure to U.S. stocks because of Trump’s economic policies should also remember the U.S. market has had an exceptional 12-year run, and those kinds of long-term trends do tend to reverse.

“That has us a bit more cautious on the U.S. side at this point,” Basinger said.

There’s little doubt it will be a bumpy ride ahead, but company valuations aren’t based on the short-term, and it will be important to ride out the chatter, said Basinger.

“There’s probably going to be a fair bit more volatility,” he said.

“We can guarantee there’s going to be a lot more noise.”

Looking at the historic precedent on tariff threats is helpful, said Kevin Khang, senior international economist at Vanguard. He pointed to the tariff episode in 2017 and 2018 where Trump ultimately ended up imposing fairly targeted import duties on steel and aluminum after making broader threats.

“That’s something I think is worth reflecting on … because it started out very broad and it ended up becoming a set of very concrete action items at the end of the day.”

On investment strategies more generally, he thinks balanced portfolios like the 60/40 equities to bonds split still stand up well after being tested by everything from the Great Depression to the rampant inflation of the 1970s.

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“If you broaden out the horizon, then you can maybe take some comfort in knowing that as long as you have a balanced portfolio, that’s a good one that has survived far more consequential events.”

He said there’s a lot to like about the investment thesis in Canada despite the threats, as there are attractive valuations out there, but it’s important to think about what could actually propel those values higher.

“The issue with an attractive valuation investment case is that, OK, what’s going to be the catalyst, and then when are we going to start seeing the excitement?”

It’s not so simple as shifting more investments to the U.S. though, since valuations there are already running high.

“It’s kind of priced at a level where it’s very vulnerable to really just a couple of things not going the right way.”

Others see the Canadian market and economy on shakier footing, and view the latest threats as all the more reason to double down.

Stephen Johnston, director of investment firm Omnigence Asset Management, has for years been worried about the risk of stagflation in Canada and has been investing accordingly.

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While inflation is currently back at the Bank of Canada’s two per cent target, the potential imposition of tariffs by the U.S. and the weakened loonie could spike again, while also hitting Canada’s limited economic growth, said Johnston.

The latest threats, adding to the existing troubles in Canada with lagging productivity and trade deficits, could create the weak growth and elevated inflation that result in stagflation, he said.

“The things that Trump is proposing to do to Canada are going to make our stagflation problem worse. And so investors really have to be alive to that,” he said.

He said investors can’t make the assumption of strong growth ahead given the potential trade disruptions and other forces, and should assess their portfolios against what could be a weakening middle class.

His investment thesis has led him to focus on areas he sees as resilient to a recession and erosion of middle-class buying power like farmland, automotive repair and home security systems.

“I’m not pleased that all this is happening, and I wish there were other things we could invest in. It’s just we can’t ignore the fundamentals,” said Johnston.

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He said that while a general bet on steady growth has worked well for decades, you can’t be complacent about what the economic drivers are behind it.

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“There’s clear indications that they’re about to change materially.”

But Khang likes to remember the old phrase that Vanguard founder John Bogle often said: “This too shall pass.”

“Investment is a long game,” said Khang.

“So that’s one quote that I think is actually worth reflecting on, for investors that may be dealing with the anxiety and rising uncertainty.”

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