Global Equity Weekly

March 14, 2025 | 16:31

Another Brick in the Tariff Wall

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Equity markets slid this week as tariff tensions continued to weigh on sentiment. The S&P 500 fell 2.3%, dipped into correction territory at one point (down more than 10% from its recent closing high), and fell below the 200-day moving average for the first time since October 2023. The TSX outperformed again, down 0.8% on the week, largely due to strength in gold and energy.

Tariffs themselves are clearly a negative—this week saw 25% steel and aluminum tariffs put in place by the U.S.—pulling down growth while pushing up on inflation. But the U.S. Administration’s tone might be doing even more harm. That is, they seem to be writing off significant economic and market disruption as just part of the process in achieving their larger objectives. While valuations were on the stretched side coming into this episode, leaving equities somewhat exposed, the hard rhetoric has indeed begun to stomp on sentiment. According to AAII, the share of individual investors who are bearish spiked to 60% over the past three weeks, a level seen only in 2022, 2009 and 1990—yes, contrarians, those readings were near market lows.

Source: Bloomberg

On Main Street, the University of Michigan’s measure of consumer confidence fell for a third straight month, to 57.9 in March from 74.0 in December. The expectations component has really melted, and has come with sharp increases in both year-ahead and five-year inflation expectations—the latter hit the highest level since 1993. The concern is that crumbling confidence eventually leads to delayed hiring/capital spending decisions, reinforcing an economic slowdown.

All that said, here are some notes on the damage done since the S&P 500 peaked on February 19th:

The Nasdaq has fallen hardest of the major indices, understandable given the higher-beta and more aggressively valued names there. Technology and communication services are both down more than 10% in the S&P 500.

Banks have also struggled and, along with consumer discretionary, have fallen nearly 15% since late-February. Growth and tariff concerns are biting there.

Defensives have outperformed in textbook fashion, with U.S. health care, utilities and consumer staples all down very modestly during this correction.

Canada has held up well given that the TSX was already cheap from a valuation perspective, and the economy was arguably earlier in the cycle (i.e., gaining momentum after more aggressive BoC easing). Exposure to gold has certainly helped, while continued Bank of Canada easing (including this week’s 25 bp rate cut) is supporting beaten-down rate-sensitive sectors and dividend payers.

Europe and the U.K., on the back of an expected surge in government/defense spending, have outperformed. The German DAX is up almost 3% since the S&P 500 correction began, while the FTSE and CAC are little changed.

Major Index Performance

North American Sector Performances

(% change over period)

Table 1 - S&P 500 Sector Performance

Source: BMO Economics, Bloomberg

Table 2 - TSX Sector Performance

Source: BMO Economics, Bloomberg

TSX Relative Sector Performance

(relative to the index, year-ago = 100; dashed line = 200-day m.a.)

S&P 500 Relative Sector Performance