Navigating Uncertainty in 2025: Key Investment Considerations for Canada

The first two quarters of 2025 are poised to challenge investors as uncertainty surrounding U.S. economic policies and shifting political priorities may lead to heightened market volatility. Understanding how these factors could influence cross-border trade and sector performance is crucial for maintaining a resilient investment strategy.

The prospect of tariffs¹ from the incoming Trump administration has introduced significant uncertainty. What is certain though, is that this is going to be painful and not necessarily just for us.

While proposed rates of up to 25% have been widely reported, these are likely negotiation tactics rather than fixed outcomes. If tariffs materialize, we’ll likely see some serious consequences for a number of U.S. export-dependant sectors such as timber and energy, which are Canada’s primary exports to America.

The Canadian Chamber of Commerce estimates that Canada’s GDP (Gross Domestic Product) could contract by 2.6%², equivalent to a $78 billion economic loss—or roughly $1,900 per person annually. Some analyses, like that from E&Y Parthenon, suggest the impact could exceed 4% by 2026, underscoring the far-reaching consequences of protectionist trade policies.

In response to tariffs from the U.S., Canada would likely introduce tariffs on U.S. imports as well. Steel, plastics, and Florida orange juice³ are goods that have been floated as potential targets, to apply as much political pressure as possible.

The Trump administration’s fiscal policies, led by Elon Musk and Vivek Ramaswamy, are creating uncertainty for sectors reliant on government funding, including defence, healthcare, and renewables. Investors face key questions: will cost-cutting drive growth or hurt corporate earnings? While risks exist, innovation-driven sectors like space and green tech may gain. Strategic portfolio adjustments are crucial to manage risks and seize opportunities.

Musk has mentioned “temporary hardship”⁴ as spending cuts are expected, which could slow economic growth if implemented extensively. Musk’s mission to cut red tape, streamline operations, and reduce expenditures in the Department of Government Efficiency⁵ may significantly impact the economy, at least in the short term.

Historically, deep spending cuts have provided fiscal discipline, but often at the expense of growth in government-dependent sectors. Spending cuts could hurt sectors like infrastructure, but benefit industries thriving under less regulation, such as technology.

Depending on the new government department’s spending cut targets, a mass of laid-off government workers would increase unemployment, weakening U.S. consumer demand. This scenario would make consumer discretionary stocks less desirable, with perhaps a tilt towards consumer staples and more defensively oriented consumer stocks.

The U.S. economy outperformed expectations in 2024, but inflation remains persistent⁶, prompting upward revisions to 2025 interest rate forecasts.

Sustained higher interest rates, coupled with potential government spending cuts, may help curb inflation. However, these measures could create temporary economic challenges before setting the stage for resumed growth in late 2025.

The potential for a more deregulated U.S. energy sector adds another layer of complexity for Canadian markets. Increased U.S. crude oil production may drive prices lower, challenging Canada’s primary export market.

Despite being the world leader² in crude oil and natural gas production, the U.S. still relies on imports for around 40%⁸ of its refining needs, with Canada as the primary supplier.

However, expanded U.S. production could reduce demand for Canadian exports, pressuring energy-reliant regions and sectors. The rise of a Conservative government in Canada benefits the energy sector but faces headwinds from the U.S.’s “Drill, Baby, Drill” push for energy independence, especially with potential tariffs.

In light of these dynamics, a defensive investment approach may prove prudent, particularly in the early months of 2025 when policy uncertainties are at their peak. Dividend-paying sectors that can deliver stable revenue growth in a slow-growth environment, such as consumer staples, utilities and insurers stand out as compelling options.

The Global X Best of Canada ETF Suite provides targeted exposure to Canada’s most resilient and liquid companies, which supply essential goods and services. That includes SAFE, an ETF focusing on Canada’s largest insurance companies, which can offer a strong defensive position if markets get choppy. These firms have historically provided stability and consistent dividends, even during periods of market turbulence.

For Canadian investors, staying disciplined and maintaining a diversified portfolio is essential to navigating the uncertainties of 2025. Defensive assets, dividend-paying sectors, and carefully selected ETF strategies can help balance risk while capitalizing on emerging opportunities. As market conditions evolve, a proactive yet measured approach will be key to achieving long-term investment goals.

Related ETFs

USCC.U*, USCC – Global X S&P 500 Covered Call ETF
QQCC – Global X NASDAQ-100 Covered Call ETF
ENCC – Global X Canadian Oil and Gas Equity Covered Call ETF
ENCL – Global X Enhanced Canadian Oil And Gas Equity Covered Call ETF
MART – Global X Equal Weight Canadian Groceries & Staples Index ETF
SAFE – Global X Equal Weight Canadian Insurance Index ETF
* Trades in U.S. dollars.

Sources

¹ Source: https://archive.is/mdP1D
² Source: https://chamber.ca/news/trumps-25-tariff-threat-new-analysis-reveals-severe-economic-fallout-for-both-canada-and-the-u-s/
³ Source: https://www.cbc.ca/news/politics/canada-trump-tariff-threat-items-1.7426392
⁴ Source: https://www.msnbc.com/the-reidout/reidout-blog/elon-musk-trump-hardship-austerity-taxes-rcna177732
⁵ Source: https://www.bbc.com/news/articles/c23vkd57471o
⁶ Source: https://archive.is/zDWXg
⁷ Source: https://www.eia.gov/tools/faqs/faq.php?id=709&t=6
⁸ Source: https://www.bbc.com/news/articles/c86q87yjgzjo

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Effective June 24, 2022, the investment objectives of the Global X Canadian Oil and Gas Equity Covered Call ETF (“ENCC”) (formerly  Horizons Canadian Oil and Gas Equity Covered Call ETF), the Global X S&P 500 Covered Call ETF (“USCC.U, USCC”) (formerly  Horizons US Large Cap Equity Covered Call ETF),  and the Global X NASDAQ-100 Covered Call ETF (“QQCC”) (formerly  Horizons NASDAQ-100 Covered Call ETF), were changed following receipt of the required unitholder and regulatory approvals. For more information, please refer to the disclosure documents of the ETFs at www.GlobalX.ca.

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Published January 17, 2025.