Lexicon Financial Group Weekly Update — May 7, 2025

May 7

“There’s a bright spot in every dark cloud.”

— Bruce Beresford, an Australian film director, screenwriter, and producer

From the desk of Craig Swistun, CIM, MFA-P, Portfolio Manager, Raymond James Investment Counsel, and Wayne Hendry, Client Relationship Manager, Raymond James Investment Counsel

Looking Around

Tempus fugit. Time flies. It’s hard to believe, but we are almost halfway through 2025. Blink and you miss it. Time is the scarce resource; once it is gone, it’s gone.

Since President Trump took office just over 100 days ago, major U.S. markets have been extremely volatile, and consumer confidence in the United States (U.S.) has plunged to an almost five-year low. According to analysts, the odds of a recession are increasing. There are more challenges on the horizon and worth watching, including rising prices (inflation), supply chain disruptions, and the potential impact on the global economy of more tariffs.

It was just a few short weeks ago when China, America’s third-biggest trading partner and second-biggest source of imported goods, responded to the 145 per cent U.S. tariff with a 125 percent tariff on American goods. Although China has signalled that it would not continue to play the tit-for-tat tariff game, prices are already rising. China is the largest source of foreign goods for the U.S. personal consumption, so the tariffs on China will erode real disposable income as well as the purchasing power of American households, especially lower-income households

The Tax Foundation estimates that the duties on Chinese goods — even accounting for Trump’s exemptions on electronics — will cost U.S. households USD 1,200 a year. For example, taxes on Temu’s shipped-from-China goods exceeded the value of the product. A USD 19.49 power strip has USD 27.56 in tariff charges.

As time creeps forward, we’re looking at the impact tariffs will have on machinery, construction materials, and industrial equipment will also become more expensive, which could crimp capital spending plans and corporate margins in the U.S. And what impact does that have on capital markets and interest rates?

Recent estimates of the impact of U.S. tariffs on the Chinese economy predict a 2.4 percent decline in GDP this year. There are several ways the effects of the tariffs could be magnified. As U.S. trade with ASEAN countries is affected by tariffs, it will likely dampen business for Chinese firms with value chains in those regions whose products and components are destined for the United States. Given restrictions already imposed on Chinese goods, such as on EVs, expanding trade away from the U.S. will be challenging. (2)

This may seem to be a gloomy picture, but just as quickly as things changed in the last 100 days, they could evolve just as quickly over the next 100 days. For example, the current 90 days pause on tariffs will be ending, and what happens next is anybody’s guess.

Only time will tell, but in the meantime we continue to watch, monitor, and manage your investment portfolios where needed.

Read and Watch

Want deeper insight into topics in your Weekly Update? Then, read and/or right click:

TSX returns to positive territory for 2025 as Canada votes

There are signs Trump could be ready to retreat on tariffs

Trump’s tariffs could make Europe, not America, ‘Great Again.’ At least when it comes to inflation

Tariffs prompt Bank of Japan to lower growth forecasts

China chides US over ‘serious negative impact’ of Trump tariffs as trade talks set to begin

Raymond James Markets & Investing: Looking beyond President Trump's first 100 days in office - CIO Larry Adam, May 2, 2025

Raymond James Economy & Policy: Firms front-load increase in tariffs during Q1 2025 - Chief Economist Eugenio J. Alemán, May 2, 2025

Looking Back

The S&P/TSX composite index (TSX), Canada’s main stock index, closed 1.3 per cent higher last week. However, this is less than U.S. and global markets, thanks to price pressure on crude oil has resulted in a sub USD 60 per barrel. However, energy stocks on the TSX still marked some gains, while financials, industrials, and tech performed better. (4)

U.S. stocks finished the week higher last week. The S&P 500 Index logged its second consecutive week of gains for the first time since January The technology-heavy Nasdaq Composite rose 3.42 per cent, supported by better-than-expected earnings reports from several large-cap tech companies. Small-cap and mid-cap indexes also advanced for the fourth week in a row. It looks like positive sentiment last week was also driven by a continuation of the prior week’s optimism around de-escalating trade tensions, with President Donald Trump rolling back some of his initial tariffs on cars and auto parts and Commerce Secretary Howard Lutnick announcing that a major trade deal was nearing the finish line.

Last Friday’s BLS payrolls report surprised to the upside – U.S. employers added 177,000 jobs in April, which is slightly down from March but well ahead of estimates for 135,000. The Bureau of Labour Statistics (BLS) reported Tuesday that job openings fell to 7.2 million in March - the lowest reading since September – which suggests that demand for workers may be cooling amid elevated levels of economic uncertainty. Furthermore, the Bureau of Economic Analysis (BEA) released its advance estimate of first-quarter economic activity last Wednesday that indicated that the U.S. economy contracted at an annual rate of 0.3 per cent in the first quarter - the first negative reading since 2022. The BEA attributed the contraction in gross domestic product (GDP) to increased imports, a deceleration in consumer spending, and a downturn in government spending.

Last week was also a positive one for major European stock markets, as they all ended up last week higher. Economic growth in the eurozone accelerated in the first quarter to 0.4 per cent from 0.2 per cent in the previous three months. Inflation in the eurozone remained at 2.2 per cent in April which is higher than economists had expected.

Japan’s stock markets followed suit and also rose last week. With the Bank of Japan holding rates steady and downgrading its growth and inflation forecasts, investors’ expectations grew that the timing of the central bank’s next interest rate increase could be delayed. Bilateral trade negotiations between the U.S. and Japan are still at the preliminary stage, with both sides looking for common ground.

Stock markets in China declined last week despite China stating that it was considering the possibility of holding trade talks with Washington last Friday. According to Bloomberg, China has started to exempt some U.S. goods from tariffs covering roughly USD 40 billion worth of imports. The manufacturing PMI in China fell more than expected to 49 from 50.5 in March, which is the worst contraction since December 2023. China set an economic growth target of around 5% this year, a goal that many analysts think will be hard to meet given the trade war. (5)

The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable, but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors, and we recommend that clients seek independent advice from a professional advisor on tax-related matters.