Despite the negative hit to growth in the last couple of quarters due to ongoing tariff uncertainty, Canada and the global economy will likely avoid a recession, says Michael Sager, managing director and CIO of the multi-asset and currency management team, CIBC Asset Management.

“Fiscal [spending] and more Bank of Canada rate cuts will probably almost offset that negative tariff impact, and will be an important tailwind to the recovery,” he said in a July 10 interview.

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Sager said that while Canadian GDP is “very soggy” at the moment and unemployment has risen, government policy support and real-wage growth should help the economy strengthen over the next four quarters.

“We’ll see more government spending to at least partially alleviate housing supply constraints, targeted spending to improve infrastructure and productivity, which has been very poor for a number of years, and targeted spending to help diversify away from Canadian reliance upon the U.S. economy at least at the margin,” he said.  

The picture may not be as rosy south of the border, with the trade war putting a strain on growth, Sager said. And while the U.S. dollar remains globally dominant, investors are growing concerned over U.S. policy making and government debt.

“At the margin, something is deteriorating in the status of the dollar,” he said. “But we don’t want to overemphasize how big that change is in a short period of time.”

Sager said while the U.S. dollar weakened by about 10% in the first half of 2025, it’ remains expensive. As the Fed becomes “less hawkish” and the global economy is expected to recover faster than the U.S. over the next year, he predicted a continued weakening trend for the U.S. dollar.

As a result, he said, the Canadian dollar should increase in value against the U.S., going from $0.73 as of July 10 to about $0.78. The euro is also likely to continue strengthening.

Investment opportunities

Modest growth in the global economy will be positive for equity markets and risk assets, Sager said.

“Canada and EAFE are relatively attractive,” he said. “Within the U.S., we like tech. Along with the global economic cycle, we think the global tech cycle has positive legs still, and really the most dominant place to get access to the up tech cycle that we expect remains the Mag Seven.”

Sager is “neutral” on the remainder of the S&P 500 and said fixed income is “less attractive,” with the exception of U.S. Treasuries. That’s because there’s an opportunity for yields to fall in the U.S. and prices to rally, he said.

Overall, investors should stay focused on opportunities in equities, Sager said. “[The anticipated] recovery will likely be very helpful to Canadian equities relative to U.S. equities.”

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.

Text transcript

Welcome to Advisor to Go, brought to you by CIBC Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject-matter experts themselves. 

* * * 

Michael Sager, managing director and CIO of the multi-asset and currency management team, CIBC Asset Management 

* * * 

We’ve certainly experienced a slowing in global GDP growth in the past couple of quarters, and that’s been led by a weakening of activity in the U.S. economy. Overall, though, activity, whether in the U.S. or in the global economy in aggregate, has remained resilient and probably a little bit better than was thought likely at the onset of the tariff war in spring of 2025.  

So that’s the broad situation. It’s slower growth than would have been the case, but it’s okay, and that means that it’s okay for equities and risky assets, broadly speaking. Tariff risks and related policy uncertainty emanating from the U.S. certainly remain high and are important drags on activity by themselves over the next couple of quarters.  

And if we think about where that drag on growth from tariffs and uncertainty is going to be biggest, well, it will be the U.S., which sounds kind of counterintuitive but makes sense when you think about the fact that it’s the U.S. that has chosen to fight a trade war on all fronts. And so the biggest hit to growth will be in the U.S.

Elsewhere — and this is why we’re still relatively constructive on the global economy — the impact on economic activity from tariffs, that negative impact, is likely to be mitigated by higher fiscal spending in Canada, in Europe and China, as well as more policy easing from central banks. So as a result, we do expect the global economy to avoid a recession, and as I said at the top, that economic conditions will remain broadly supportive of equities and risk assets, even though we are in the middle of a slowing. 

* * * 

So let’s turn to Canada and think about how the election, and the results of the election impacted the outlook for the Canadian economy. I think the bottom-line conclusion is that the results of the election are likely to be positive for the economic outlook in Canada. Right now, economic activity is weak. We don’t get the data for the second quarter until well into Q3, but Q2 is likely to be the weakest point of the cycle for Canada. GDP is very soggy. The unemployment rate has risen quite meaningfully.  

So I think it’s clear at the moment, the economy is not doing particularly well. But there’s reasons to think that we’re on the cusp of a gradual improvement. Certainly, tariff risks remain. But here we continue to think that a trade deal with the U.S. is coming, which means that the aggregate tariff rate applied to Canadian exports to the U.S. actually will be quite low.  

In addition, we do think there’ll be significant policy support. There is continued positive real-wage growth, and both of those will be important tailwinds to economic activity, helping the Canadian economy to recover and growth to strengthen as we move through the next four quarters.  

And so specifically, as a result of the election from a couple of months ago, we’re going to get quite significant government fiscal policy support, and that support will be quite targeted, which makes it particularly impactful. For instance, we’ll see more government spending to at least partially alleviate housing supply constraints, targeted spending to improve infrastructure and productivity, which has been very poor for a number of years, and targeted spending to help diversify away from Canadian reliance upon the U.S. economy at least at the margin.  

So if you put all of those together, yes, there’s a negative hit to growth coming from tariffs, but we think the policy to support fiscal and more Bank of Canada rate cuts will probably almost offset that negative tariff impact, and will be an important tailwind to the recovery that we expect. That recovery will likely be very helpful to Canadian equities, relative to U.S. equities for instance. 

* * * 

We’re not calling for an abrupt change in the status of the U.S. dollar. In fact, if you look at the broad usage of the dollar in international transactions over the last quarter century, it hasn’t changed. So despite repeated calls for a loss of global dominance, the dollar is as dominant as it ever was. But at the margin, clearly, something is happening, and investors have grown more concerned regarding the quality of U.S. policy making, the sustainability of U.S. government debt and other factors.  

And you can see that concern in a breakdown of traditional correlations, whether it’s between the level of the U.S. dollar and the level of U.S. Treasury yields. A clear break in that relationship. Or in the correlation between returns to the dollar against the Canadian dollar and local equity returns. Again, a clear change in the correlation. So at the margin, something is deteriorating in the status of the dollar. But we don’t want to over emphasize how big that change is in a short period of time. So that’s one aspect.  

And then, the U.S. dollar is clearly expensive, even though in the first six months it weakened by about 10% on a broad basket. It’s still expensive and likely to weaken. The U.S. economy is losing its cyclical growth leadership. The Fed is likely to become less hawkish, and the rest of the global economy, as I already talked about, is likely to recover faster than the U.S. over the next few quarters. Put those pieces of the puzzle together, they suggest a weaker dollar. So that’s our outlook.  

And so we think about the Canadian dollar today, we’re trading at $0.73 today, being the 10th of July, we think that the Canadian dollar can easily appreciate to around about $0.78. So [a] high single-digit increase in the value of the Canadian dollar against the U.S. Again, that relates to what’s happening in the underlying economy: a gradual slowdown in the U.S., a gradual recovery in Canada. Same story in Europe, where we expect the euro to continue to strengthen, for instance. So the outlook that we have for a weaker U.S. dollar is symptomatic of our view for the cyclical economic outlook. A strengthening rest of the world, and a weakening U.S. economy. 

* * * 

Our view of a modest growth rate for the global economy this year is broadly positive for equity markets and risk assets. So that’s the first opportunity. Definitely keep invested and stay focused on the opportunity that equities broadly offer.  

Within that there are, of course, relative opportunities. We think that Canada and EAFE are relatively attractive. Within the U.S., we like tech. We think that along with the global economic cycle, we think the global tech cycle has positive legs still. And, really, the most dominant place to get access to the up tech cycle that we expect remains the Mag Seven.  So U.S. tech remains positive. We’re neutral on the remainder of the S&P, the 493, as it were.

So U.S. tech, we’re positive. Canadian equity, we’re positive. EAFE, we’re positive. Less attractive from fixed income, given our view on the economy, although within that U.S. Treasuries are probably more attractive, given that there’s a bigger opportunity for yields to fall in the U.S., given the backup over previous months, and therefore for prices to rally.

* * *

This program is intended for Advisor Use Only. The views expressed in this material are the views of CIBC Asset Management Inc., as of the date of publication unless otherwise indicated, and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This material is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, it should not be relied upon in that regard or be considered predictive of any future market performance, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this material should consult with their advisor. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or other similar wording. In addition, any statements that may be made concerning future performance, strategies, or prospects and possible future actions taken by the fund, are also forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results and achievements of the fund to differ materially from those expressed or implied by such statements. Such factors include, but are not limited to: general economic, market, and business conditions; fluctuations in securities prices, interest rates, and foreign currency exchange rates; changes in government regulations; and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. CIBC Asset Management Inc. does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise prior to the release of the next management report of fund performance. Past performance may not be repeated and is not indicative of future results. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. ^® The CIBC logo and “CIBC Asset Management” are registered trademarks of CIBC, used under license.

The trade relationship between the U.S. and Canada remains a key consideration on economic growth, and will influence how Canadian assets perform this year, says Leslie Alba, head of portfolio solutions, Total Investment Solutions at CIBC Asset Management.  

“Tariffs and the uncertainty around it really have weakened the economic outlook for Canada,” she said in a May 1 interview. But she added that she remains “cautiously optimistic” Canada will avoid a deep recession in the next year.  

“We expect fiscal stimulus, monetary policy accommodation, and lower oil prices due to rising supply [from] OPEC and slowing global growth to really mitigate the negative impact of tariffs on GDP growth,” she said.  

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management. 

Alba added that an escalating trade war between Canada and the U.S. could as easily push the U.S. into recession. 

“That incentivizes U.S. policymakers to reach a revised trade agreement with Canada sooner than later,” she said. “And for this reason, our baseline outlook is for a U.S.-Canada trade deal within the coming months.” 

Alba noted while there might be an economic slowdown in Canada as trade negotiations continue, she expected growth to average 1% over the next four quarters.  

There are risks to that view, she said, including the Liberal’s minority election win, which could impact the federal government’s agenda and weaken Prime Minister Mark Carney’s political leverage in U.S. negotiations. 

“There’s [also] the risk that the federal government may underdeliver on some of its promises due to red tape and potential lack of expertise,” she said.  

Finding yield 

Tariff uncertainty is continuing to drive market performance, creating volatility and market swings, Alba said.  

“With global trade making up about 6% of global GDP, we expect market volatility also to remain elevated for at least the foreseeable future,” she said. To address volatility, Alba suggested positioning portfolios for the long term and diversifiying.  

Bonds, she said, remain “a dependable offset” during equity drawdowns. She pointed out that from the beginning of the year through April 11, the Bloomberg U.S. Treasury bond index in U.S. dollars delivered a positive return on 75% of the days that the S&P 500 index lost more than 175 basis points. 

Bonds are counter-cyclical to monetary policy, she noted. “We see bond prices rise when central banks cut rates to stimulate the economy. So investors should be able to find some comfort in diversification and in the yield coming from bonds,” she said, adding that corporate bonds do particularly well compared to equities during economic weakness.  

The key for investors when faced with uncertainty, she said, is to stick to a strategic asset allocation, remain calm and avoid the temptation to sell out of markets, and focus on long-term objectives.  

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor. 

Text transcript

Welcome to Advisor to Go, brought to you by CIBC Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject-matter experts themselves. 

* * * 

Leslie Alba, head of portfolio solutions, Total Investment Solutions, CIBC Asset Management 

* * * 

With the Liberals winning the Canadian elections at the end of April, we expect their pro-growth fiscal policies to support Canadian equities over U.S. equities, and the Canadian dollar over the U.S. dollar. But we do have a relatively negative bias on the Canadian 10-year government bonds. 

In the context of political tensions and long-term uncertainty with the United States, the election outcome reinforces our view that Canada is entering a multi-year pro-growth fiscal policy regime. And specifically, a regime that 1) targets housing financing of about 1% of GDP for innovative, prefabricated and low-cost homes; 2) infrastructure to boost chronically weak Canadian productivity; and 3) trade diversification to help Canadian businesses diversify their markets and reduce dependency on the United States. 

That said, an important order of business, which might even be of greater importance than anything else on the Liberal platform is the trade relationship with the United States. And it’s important because we view tariff uncertainty as the main driver of recent volatility in global markets. We believe that the market is really wrestling with the frequent sway of tariffs and related announcements, which is creating a series of under and over reactions. 

But volatility doesn’t imply markets only go down; it means up and down, and often pretty sharply in a pattern that keeps repeating. 

It’s worth noting too that short-term volatility tends to be a recurring feature of markets. When we looked at data from January 1980 to the end of December 2024, we experienced an average intra-year maximum drawdown of 15% on the TSX index. That said, despite that average drawdown of 15%, the annualized total return on the TSX index was 7.7%. So our long-term observation is that markets do tend to find ways to climb over the wall of worry. 

Nevertheless, we believe the primary macroeconomic driver of the performance of Canadian assets will continue to be the trade relationship with the U.S. At a micro level, though, volatility can actually create opportunities through some of the price dislocations that result from the over and under reactions. 

* * * 

While the Bank of Canada decided to hold its policy rate in April, we do expect rate cuts over the remainder of 2025. The decision to hold the policy rate at 275 basis points in April was largely due to the unprecedented magnitude in and shift in U.S. trade policy, and the unpredictability of tariffs, which made it unusually challenging to project GDP growth and inflation in Canada, but also globally. 

Taking a step back, heading into this year, Canada was actually well-positioned for an economic recovery, thanks to aggressive policy easing by the Bank of Canada, robust real incomes and signs of improvement in residential construction. Also, inflation was easing towards the central bank’s target. However, tariffs and the uncertainty around it really have weakened the economic outlook for Canada. 

But in our view, a protracted trade war between the U.S. and Canada would actually have large implications for the U.S. economy, and would likely push the U.S. economy into a recession, given other tariffs that the U.S. has put in place. So that incentivizes U.S. policymakers to reach a revised trade agreement with Canada sooner than later. And for this reason, our baseline outlook is for a U.S.-Canada trade deal within the coming months. 

So overall, our view on policy rates is that they will more likely go down than up. And while there’s a risk that tariffs stay on longer than we expected, in that scenario, our view is that the Bank of Canada might step in to provide some relief to the economy through lower policy rates, despite potential inflationary impacts, which we expect to be transitory anyways, but coming from tariffs. 

* * * 

Our team is cautiously optimistic that the Canadian economy will avoid a deep recession over the next 12 months. 

We expect fiscal stimulus, monetary policy accommodation, and lower oil prices due to rising supply of OPEC and slowing global growth to really mitigate the negative impact of tariffs on GDP growth. 

That said, there may be a short period of meaningful economic slowdown, or even negative growth. But ultimately, we expect growth to average 1% over the next four quarters. 

Of course, there are some risks to that view. From a political perspective, there are risks to the efficacy of the Liberal government, including the absence of a majority government, which could hinder some important items on the Liberal agenda, and could also weaken Mark Carney’s political leverage in some of the U.S. negotiations. 

And then there’s also — albeit a smaller risk — there’s the risk that the federal government may under deliver on some of its promises due to red tape and potential lack of expertise. 

* * * 

Our advice is to position portfolios for the long term. 

The current policy environment continues to be highly uncertain and is far less predictable than usual, and we do expect heightened tariff risk to remain. And with global trade making up about 6% of global GDP, we expect market volatility also to remain elevated for at least the foreseeable future. 

That said, we believe the responsible thing to do for investor portfolios is to take a step back and remain calm, really, despite potential short-term swings, like the ones we’ve seen recently, volatility does tend to smooth out over the long term. 

Diversification in portfolios is key. In the midst of market volatility so far this year, with the largest swings in volatility really occurring at the beginning of April, diversification within and across key capital markets did help offset pockets of weakness in others. 

In 2025 through to the end of April 11, bonds were a dependable offset during the larger equity drawdown days. The Bloomberg U.S. Treasury bond index in U.S. dollars delivered a positive return on 75% of the days that the S&P 500 index lost more than 175 basis points, also in U.S. dollars. 

So looking forward, we expect the diversification benefits from bonds to persist. We remain optimistic on the potential for bonds to provide useful diversification in investors’ portfolios. 

Unlike 2022, all-in bond yields today remain relatively attractive. And this is an important prerequisite for bonds to offset negative equity performance because higher coupon rates create return reliability and stability, which should create some buffer for portfolio returns amid equity market weakness. Also in times of economic weakness, bonds are counter-cyclical to monetary policy. You know, we see bond prices rise when central banks cut rates to stimulate the economy. So investors should be able to find some comfort in diversification and in the yield coming from bonds. 

Corporate bonds can also be expected to do well, relative to equities, when the economy suffers. Along with benefiting from the negative correlation to interest rates, corporate bond holders are higher priority in the capital stack than shareholders, meaning that they will get paid before equity holders in the event of default. 

So with the degree of continued policy uncertainty, we believe true diversification — and that means investing in a range of assets with different drivers of financial productivity, or with different risk exposures — is particularly useful. While it can be tempting to sell out of markets when faced with uncertainty, such as, you know, the ones we currently face with trade policies, sticking to a strategic asset allocation is a sound way to navigate near-term volatility, and to be able to continue to pursue long-term investment objectives. 

**

This program is intended for Advisor Use Only. The views expressed in this material are the views of CIBC Asset Management Inc., as of the date of publication unless otherwise indicated, and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This material is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, it should not be relied upon in that regard or be considered predictive of any future market performance, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this material should consult with their advisor. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or other similar wording. In addition, any statements that may be made concerning future performance, strategies, or prospects and possible future actions taken by the fund, are also forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results and achievements of the fund to differ materially from those expressed or implied by such statements. Such factors include, but are not limited to: general economic, market, and business conditions; fluctuations in securities prices, interest rates, and foreign currency exchange rates; changes in government regulations; and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. CIBC Asset Management Inc. does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise prior to the release of the next management report of fund performance. Past performance may not be repeated and is not indicative of future results. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. ^® The CIBC logo and “CIBC Asset Management” are registered trademarks of CIBC, used under license.

Text transcript

Welcome to Advisor to Go, brought to you by CIBC Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject-matter experts themselves. 

* * * 

Michael Sager, MD and CIO of the multi-asset and currency management team at CIBC Asset Management 

* * * 

Where does the Canadian economy stand as we move through the first half of 2025? Well, I think it’s very clear that the outlook for the Canadian economy, Canadian growth is weaker than we had expected it to be earlier in the year. This is due to a combination of U.S. tariffs on Canadian exports to the U.S. and — related to that — extreme policy uncertainty.  

That said, at the time of recording on April the 14th, we continue to think that the Canadian economy can continue to deliver positive growth across the next year as a whole. This positive growth outlook is driven by tailwinds from previous Bank of Canada policy rate cuts, additional rate cuts by the Bank of Canada that we think we’re likely to see in the coming 12 months, targeted fiscal policy stimulus from the federal government, the fact that consumer balance sheets are currently relatively healthy and, therefore, supportive of continued consumer spending growth, and we have an expectation that we will see a revised trade deal between Canada and the U.S. in the next six months or so, which will help also to moderate some of the high current uncertainty that we see.  

So if you put all of those pieces together, weaker growth, but still positive growth. And to be clear, again, at the time of recording, we don’t see a recession for Canada as the most likely outcome. However, downside risks are clearly significant at the moment. 

* * * 

So, what actions do we think need to be taken to ensure that the Bank of Canada’s inflation target is met, and that growth does continue over the coming year? Well, definitely one element will be additional Bank of Canada policy rate cuts. We expect the Bank to deliver another three quarter-point cuts in the coming 12 months. 

That said, the Bank is likely to be on the sidelines for the next couple of months, as it assesses the relative strength and persistence of the likely increase in inflation due to tariffs, versus the expected weakening in growth that tariffs are expected to trigger. 

Our view is that the negative growth impact of tariffs is ultimately more significant than the temporary boost to inflation that higher tariffs imply. Hence, ultimately, the Bank of Canada will focus on supporting growth via additional rate cuts. But it might take its time for the next couple of months while it assesses the situation before it implements its next easing. 

And then another action that we definitely think is needed, and likely to mitigate the negative impacts on growth of higher tariffs and elevated uncertainty is federal government stimulus — targeted stimulus — to help support growth in the worst affected segments of the Canadian economy. 

* * * 

What key factors will continue to impact markets through the remainder of 2025? I think there are a few. 

First of all, if we are correct that growth will be weaker than we previously expected but nonetheless still positive, we need to monitor the labour market. Clearly there will be a further rise in unemployment. But the size of that — the magnitude of that increase in unemployment — matters. We think it will be relatively contained, and so we need to monitor that as a key determinant of whether we’re correct in our less-positive but still constructive, relatively constructive outlook for growth.  

We are making an assumption that there will be a revised trade agreement between Canada and the U.S. Economic and political self-interest on both sides of the border suggest that that is likely to happen, but that’s a key element of our outlook for growth. 

And then U.S. trade policy, more generally, has injected an extreme amount of uncertainty into the economy and markets. Until U.S. policy objectives broadly become much clearer and much more predictable, volatility will likely remain elevated, whether that’s volatility in the real economy or volatility in financial markets. So those are some of the key factors. 

* * * 

What can investors expect from fixed income and equities through year-end? 

Well, let’s start with equities. Heightened volatility, both in the economy and in markets, suggest that equities will continue to be challenged in coming months. That said, in relative terms, we do favour Canada and Europe over the U.S. 

Unfavourable U.S. valuations are likely to remain an important headwind in the current uncertain environment. The U.S. is the most expensive market in our investment universe. And so, while stocks elsewhere will be hit by tariffs imposed by the U.S. government, these other markets tend to be less expensive and have more support from underlying improvements in organic growth fundamentals and fiscal stimulus. So we prefer Canada and Europe over the U.S. 

So Canadian equities, again, will likely benefit from an expected trade deal between Canada and the U.S. That’s a positive. And then, supported tailwinds from the Bank of Canada cutting, and from targeted federal fiscal policy will also be constructive. They will have headwinds from slower sales and earnings growth. But net-net in relative terms, we think the positives outweigh the negatives, and prefer Canada to the U.S. 

If we turn to Europe, the recent transition in U.S. economic and security policies has prompted a response from Europe in terms of fiscal spending that was pretty unthinkable just a couple of months ago. You know, in particular, Germany is committed to a significant fiscal spending increase that will support defence and infrastructure spending, and will, again, help mitigate the negative impact of U.S. tariffs on domestic German and European growth. 

And so, again, in relative terms, that’s helpful for European equities, particularly again, when we take into account very stretched U.S. valuations. So, volatility in markets and a challenging environment for equities overall, but a favour of Canada and Europe over the U.S.  

So then turning to fixed income, we think fixed-income markets are likely to continue to experience a push-pull between weaker growth, higher inflation — both due to tariffs — and then elevated policy uncertainty. If we can get to a less-uncertain policy environment, then markets will likely begin to focus primarily again on weaker growth prospects, more than a temporary increase in inflation. 

That means for us that from mid-April onwards, on balance over the next year, higher-quality fixed income can outperform from current levels. But given the weaker growth outlook, it probably means a continued challenging environment for riskier fixed-income segments. For instance, high yield, where spreads could continue to widen. 

So a challenging market environment. We probably lean towards bonds over equities for the time being. But because the environment is so uncertain, conviction on any particular positioning, in terms of tactical asset allocation, our conviction around positioning is very low right now. So we’re staying close to benchmarks.

**

This program is intended for Advisor Use Only. The views expressed in this material are the views of CIBC Asset Management Inc., as of the date of publication unless otherwise indicated, and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This material is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, it should not be relied upon in that regard or be considered predictive of any future market performance, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this material should consult with their advisor. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or other similar wording. In addition, any statements that may be made concerning future performance, strategies, or prospects and possible future actions taken by the fund, are also forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results and achievements of the fund to differ materially from those expressed or implied by such statements. Such factors include, but are not limited to: general economic, market, and business conditions; fluctuations in securities prices, interest rates, and foreign currency exchange rates; changes in government regulations; and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. CIBC Asset Management Inc. does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise prior to the release of the next management report of fund performance. Past performance may not be repeated and is not indicative of future results. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. ^® The CIBC logo and “CIBC Asset Management” are registered trademarks of CIBC, used under license.

While economic growth is weaker due to U.S. tariffs on Canadian exports and policy uncertainty, a recession remains unlikely, says Michael Sager, managing director and CIO for multi-asset and currency management at CIBC Asset Management.

Sager’s positive growth outlook is driven by several factors: previous Bank of Canada (BoC) rate cuts, additional rate cuts that he predicted over the coming 12 months, targeted fiscal policy stimulus and healthy consumer balance sheets. He also suggested tariff concerns will be resolved in due course.

“We have an expectation that we will see a revised trade deal between Canada and the U.S. in the next six months or so, which will help also to moderate some of the high current uncertainty that we see,” he said in an April 14 interview.

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Sager suggested that while the BoC will likely remain on the sidelines as it assesses the outcome of tariffs on inflation, it will ultimately focus on growth through three 0.25% rate cuts over the coming year. He said targeted federal government stimulus is also necessary “to help support growth in the worst affected segments of the Canadian economy.”

Monitoring the labour market will be key, he added. While he expects unemployment to rise, “the magnitude of that increase in unemployment matters.”

So how will these factors impact markets?

“Heightened volatility, both in the economy and in markets, suggest that equities will continue to be challenged in coming months,” he said.

Sager favours Canadian and European equities over the U.S. due to unfavourable valuations south of the border.

“While stocks elsewhere will be hit by tariffs imposed by the U.S. government, these other markets tend to be less expensive and have more support from underlying improvements in organic growth fundamentals, and fiscal stimulus,” he said.

Germany, for instance, is committed to fiscal spending to support defence and infrastructure, which will help mitigate the negative impacts of U.S. tariffs Sager noted.

In Canada, tailwinds from the BoC’s cutting and targeted federal fiscal policy will be constructive, he added.

“We think the positives outweigh the negatives, and prefer Canada to the U.S.,” he said.

Meanwhile, the fixed-income market will “experience a push-pull between weaker growth, higher inflation, both due to tariffs, and then elevated policy uncertainty,” Sager said.

It’s a challenging environment for riskier fixed income, like high yield, where spreads could continue to widen, he warned. But he expects higher-quality fixed income could outperform.

“We probably lean towards bonds over equities for the time being,” he said. “But because the environment is so uncertain … our conviction around positioning is very low right now. So we’re staying close to benchmarks.”

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.

The threat of a trade war has created two potential outcomes for the Canadian economy, says Avery Shenfeld, managing director and chief economist with CIBC Capital Markets. 

“One quite negative, if we can’t get ourselves away from this trade war, and one that looks decidedly positive for later this year and into 2026 if the trade threat goes away,” he said in a March 14 interview. 

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

According to Shenfeld, while the 30-day pause on tariffs provides some relief, sectors that need access to the U.S. market, like automotive, assembly and machinery, will still face difficulties in the interim.

Further, if there is a more protracted trade war that lasts a couple of years, and Canada faced 25% tariffs on all non-energy exports and 10% on energy, for instance, then there is a possibility of a significant recession in the Canadian economy, he said.

“If it’s lifted and those clouds go away, then the momentum of the Canadian economy will really go back to where we looked in the second half of last year, where the interest rate cuts we’ve had were poised to stimulate domestic spending.” 

Regardless, Shenfeld said that while trade uncertainties will put a dent on growth, Canada will still “see some rays of sunshine emerging later in the year.” He forecasted growth at about 1% in the second half of 2025.

“For investors, if the trade war goes away, there’s room for a substantial rally in Canadian equities, for some solid performance by Canadian business, beginning late this year and into 2026,” he said.

Shenfeld warned that investors should still take trade war uncertaintines into consideration and position portfolios conservatively. Also, focus on sectors of the equity market that aren’t exposed to exports, and that could benefit from low interest rates, like utilities.

“Having a portfolio that has some weighting in the U.S. would be helpful in a trade war,” he said. “Within the Canadian market, there are companies that have operations on both sides of the border that may have some wins to offset some of the strains on the Canadian economy.”

Further, the bond market could also “provide some potential shelter,” he noted. “In the event that we do fall into a trade war recession, we would expect that interest rates will come down, [and] that will provide some reasonable returns to government bonds and high-grade corporate bonds. A diversified portfolio always makes sense for investors.”

Finally, while there has been some weakness in the loonie, Shenfeld still expected to see a recovery “should Canada successfully engage with the U.S. and dial down this tariff threat in the coming months.”

He added: “Really, that’s the decisive factor, and everything else will be secondary to those developments between [the] U.S. and Canada on the trade side.”

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.

Text transcript

Welcome to Advisor to Go, brought to you by CIBC Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject-matter experts themselves. 

* * * 

Avery Shenfeld, managing director and chief economist at CIBC 

* * * 

The Canadian economy looked pretty good in the second half of 2024, and as we entered this year. And that would have had the Bank of Canada deciding to take a pause on interest rate cuts to see whether they had done enough to stimulate growth. 

All of that went out the window with the tariff threat from the U.S. That has clearly soured business sentiment, and although that’s not likely to really show up in first quarter numbers, we’re expecting to see some weakness in economic activity, likely an outright decline in GDP in the second quarter of the year.  

So the Bank of Canada, attempting to provide maybe only a band aid for the economy, but lend some support to economic health, opted to cut interest rates a quarter point. That’s certainly not a cure-all for what the economy would look like if a trade war does, in fact, materialize.  

But it will be a little bit of support to domestic spending at a time when exports might be under siege and businesses might be holding back on capital spending, awaiting greater clarity. 

* * * 

A 30-day pause on most tariffs from the U.S. was certainly welcome news in the sense that it gives Canada a bit more time to send its diplomats and politicians down to Washington and try to get the U.S. side to the negotiating table. But in and of itself, it’s not really that helpful for the economy if we think about the outlook for the year as a whole.  

Putting off a major shock to exports for a month won’t really provide much comfort to sectors like automotive assembly, car parts, machinery and so on that are worried about their access to the U.S. market. 

So, if this is going to be helpful at all, it will really be just that we get a bit more time for lobbying on the U.S. side from companies that are negatively affected, and for Canada to try to get the U.S. back to the table this spring and look at a broader agreement on trade that gets us away from the tit-for-tat response of elevated tariffs, and the economic damage that that would likely bring, not only to Canada, but to some extent to the U.S. as well.  

This is really a case where the potential for a trade war, or potential relief from the trade war is going to have an overwhelming impact on where the economy heads, just given the scale of the shock that would be entailed if we were, for example, to face 25% tariffs on all our non-energy exports and 10% on energy.  

Our estimate is that if that were sustained over the next couple of years, we’d see a significant recession in the Canadian economy.  

If it’s lifted and those clouds go away, then the momentum of the Canadian economy will really go back to where we looked in the second half of last year, where the interest rate cuts we’ve had were poised to stimulate domestic spending. We were starting to get better employment growth to create household income gains to fuel that additional spending. And further out, lower interest rates might have also rekindled activity in the housing sector, coming off a period where home building has been quite subdued.  

So it’s really a case of two potential roads ahead, one quite negative, if we can’t get ourselves away from this trade war, and one that looks decidedly positive for later this year and into 2026 if the trade threat goes away. And really, that’s the decisive factor, and everything else will be secondary to those developments between U.S. and Canada on the trade side. 

* * * 

We’re still, at CIBC, holding on to a base case forecast that, although dented in the second quarter by trade uncertainties, starts to see some rays of sunshine emerging later in the year.  

That would still leave 2025 showing anemic growth overall, perhaps in the range of 1% or so. But if we did get relief from a trade war, we really have some optimism for 2026, and financial markets would be responding to that better outlook over the medium term.  

So for investors, if the trade war goes away, there’s room for a substantial rally in Canadian equities, for some solid performance by Canadian business, beginning late this year and into 2026.  

Our concern, however, is that that’s by no means a certainty, and if we were, for example, to face a more protracted trade war, then we’re looking at a recession and perhaps some further weakness in equity markets.  

So this is really a year for investors to think about, not only their base case view, which might still be somewhat optimistic, but also the risks that are facing both the Canadian economy and the global economy from a protracted trade war, and the need to then position portfolios with a little bit of conservatism to take into account that there is still some significant downside risk to that economic picture, and what that will mean for corporate earnings ahead. 

Investors have to think about how to hedge against some of the risks associated with the Canadian economy facing this potential trade shock.  

So certainly, there are segments of the Canadian equity market that are not particularly cyclical or exposed to exports. There are sectors of the Canadian economy that would benefit from low interest rates. So, for example, utilities tend to do well in a lower rate environment. And of course, having a portfolio that has some weighting in the U.S. would be helpful in a trade war, that while negative for the U.S., likely is more problematic for Canada than for companies south of the border. Even within the Canadian market, there are companies that have operations on both sides of the border that may have some wins to offset some of the strains on the Canadian economy.  

And the bond market also does provide some potential shelter, because in the event that we do fall into a trade-war recession, we would expect that interest rates will come down, that will provide some reasonable returns to government bonds and high-grade corporate bonds. So a diversified portfolio always makes sense for investors. And in a world as uncertain as it does look as of mid-March, there’s even more reason to have that diversification in your investment portfolio, just given that no one can really tell you where this trade war is going right now. 

* * * 

We have certainly seen some weakness in the Canadian dollar tied to fears that U.S. tariffs will stand in the way of our exports. And for a while, that was also generally pushing up the U.S. dollar against other major currencies from countries that America trades with. 

Of late, though, the sensitivity of the U.S. dollar and other currencies to negative news on the trade-war front seems to have died down a bit. And what that’s picking up is that markets are starting to realize that a trade war is not particularly good news for the U.S. economy. It’s causing markets to start to price in some Federal Reserve rate cuts that would come about if the U.S. economy slows significantly in the face of a multilateral trade war.  

And, so, the Canadian dollar’s weakness might not be as pronounced as we would have feared early in the year, and we still have some hopes to see a bit of a recovery in the loonie, should Canada successfully engage with the U.S. and dial down this tariff threat in the coming months.

**

This program is intended for Advisor Use Only. The views expressed in this material are the views of CIBC Asset Management Inc., as of the date of publication unless otherwise indicated, and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This material is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, it should not be relied upon in that regard or be considered predictive of any future market performance, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this material should consult with their advisor. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or other similar wording. In addition, any statements that may be made concerning future performance, strategies, or prospects and possible future actions taken by the fund, are also forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results and achievements of the fund to differ materially from those expressed or implied by such statements. Such factors include, but are not limited to: general economic, market, and business conditions; fluctuations in securities prices, interest rates, and foreign currency exchange rates; changes in government regulations; and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. CIBC Asset Management Inc. does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise prior to the release of the next management report of fund performance. Past performance may not be repeated and is not indicative of future results. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. ^® The CIBC logo and “CIBC Asset Management” are registered trademarks of CIBC, used under license.

Text transcript

Welcome to Advisor to Go, brought to you by CIBC Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject-matter experts themselves. 

* * * 

Michael Sager, managing director and CIO of multi-asset and currency management at CIBC Asset Management. 

* * * 

In January, we discussed that the U.S. dollar would likely remain strong during the rest of 2025, and that the Canadian dollar would face some challenges. So let’s update that to the end of February. 

The U.S. dollar has weakened off, actually, a little bit since the last month. But if we look at the broad macro environment, it’s one that is still, we think, conducive to the U.S. dollar remaining broadly strong. 

The U.S. economy is still the strongest major economy in terms of growth. The Federal Reserve has become more hawkish in terms of its interest rate policy outlook, compared to other central banks including the Bank of Canada. And, of course, the general environment remains very uncertain. 

Whenever we get a period of high uncertainty, high market stress, that’s typically conducive for U.S. dollar strength. 

So, if you put together the pieces — continued outperformance of the U.S. economy, a relatively hawkish Federal Reserve, and a very uncertain macro and political environment — the scene is set for the dollar to remain relatively strong and certainly to continue to trade far above a level that we would think is its long-term fair value. So, a stronger-for-longer U.S. dollar. 

For the Canadian dollar, a lot of the news over the past month has been about tariffs. At the beginning of February, the Trump administration announced much more Draconian tariffs than we and the market had expected. These were subsequently suspended for a month, but it looks like the best assumption going forward is that there will be some additional tariffs on the Canadian economy. 

At the margin, that will be negative for the Canadian dollar. That will likely lead the Bank of Canada to ease its monetary policy a little more than it would have done.  

And so, again, at the margin, a greater tariff risk, more cutting by the Bank of Canada and higher uncertainty suggests that the Canadian dollar will likely remain weak throughout the remainder of 2025, and certainly will continue to trade below a level which we would associate with its fair value — and quite meaningfully below that level, perhaps 15% cheap to that fair value. 

* * * 

So, what is the outlook for other global currencies, like the euro and the yen? 

For the euro, there are a number of risks that tend to be skewed to the downside. The European economy has remained weak. The European Central Bank is cutting interest rates. Domestic European politics remain confused and difficult. Chinese competition — particularly in electric vehicles — remains fierce. And China as an export market for, for instance, European capital goods remains very weak. So, if you put all of those factors together, the outlook is quite difficult for the euro. 

And then, there are two other factors. 

First, again, tariffs. We had expected some targeted tariffs focused on the European auto sector. The risk is that tariffs are more extensive. This will be negative for the euro. We don’t think the markets are pricing in enough of a discount for the euro. As of Feb. 21, the euro was trading at about US$104.50 against the U.S. dollar. We think that it would depreciate, it will weaken from that level given tariff risk, given all of the other risks I mentioned. 

And then the other big uncertainty is Ukraine and the possibility of a ceasefire. Let’s see how that develops. It could either be positive or negative depending on the terms. 

So our bias is for a lower euro. 

On the yen, the yen tends to be used as a hedge. So we like the yen in periods of elevated uncertainty like today. In addition, though, the Japanese economy finally, after three-and-a-half decades, seems to be achieving a self-sustaining recovery, an exit from disinflation or deflation. 

Inflation numbers for January were quite constructive. So we’re beginning to become increasingly positive on the yen. Japan doesn’t seem to be as exposed as the euro area, China or even Canada to the risk of U.S. tariffs. So we’re constructive on the yen. It looks very cheap and could appreciate a long way. 

* * * 

How about the outlook for emerging market currencies? 

Here, it’s a really mixed bag. You really have to focus on individual country and currency fundamentals. For those with attractive fundamentals, cheap valuations, high interest rates, strong domestic growth — like Brazil, Colombia, South Africa — we are very constructive. We like those currencies. The risk is that we’re in such an uncertain environment that that’s a headwind. EM assets broadly — whether it’s FX, bonds, equities — do not do well or as well as fundamentals would argue in periods of heightened uncertainty. 

So, be very aware of idiosyncratic fundamentals like currencies with strong fundamentals. But size positions accordingly, given the uncertain macro and political environment. 

* * * 

What is my outlook and advice for investors in a period like this of heightened uncertainty? 

Well, let’s step back from currency and just think about portfolios more broadly. There are always reasons to have nervousness and fear. In the long term, what matters are fundamentals, whether that’s fundamental drivers of equities, corporate returns, interest rates for bonds, and so on, and so forth. 

And so it’s important to focus on those fundamentals in the context of an individual’s long-term performance objectives. That’s the best way to achieve performance consistent with those goals and objectives. 

Trying to time market participation typically doesn’t work. So stick with the long-term, stick with fundamentals and a well-diversified portfolio. That would be my strong recommendation.

**

This program is intended for Advisor Use Only. The views expressed in this material are the views of CIBC Asset Management Inc., as of the date of publication unless otherwise indicated, and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This material is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, it should not be relied upon in that regard or be considered predictive of any future market performance, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this material should consult with their advisor. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, or other similar wording. In addition, any statements that may be made concerning future performance, strategies, or prospects and possible future actions taken by the fund, are also forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results and achievements of the fund to differ materially from those expressed or implied by such statements. Such factors include, but are not limited to: general economic, market, and business conditions; fluctuations in securities prices, interest rates, and foreign currency exchange rates; changes in government regulations; and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. CIBC Asset Management Inc. does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise prior to the release of the next management report of fund performance. Past performance may not be repeated and is not indicative of future results. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. ^® The CIBC logo and “CIBC Asset Management” are registered trademarks of CIBC, used under license.

The U.S. dollar is expected to maintain its strength through 2025, supported by a resilient American economy, hawkish Federal Reserve policy, and ongoing global uncertainty, says Michael Sager, managing director and CIO of multi-asset and currency management at CIBC Asset Management.

“The U.S. dollar has weakened off, actually, a little bit since the last month,” Sager said in a recent interview. “But if we look at the broad macro environment, it’s one that is still, we think, conducive to the U.S. dollar remaining broadly strong.”

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

Despite the slight pullback, Sager said several factors continue to underpin dollar strength. 

“The U.S. economy is still the strongest major economy in terms of growth,” he said. “The Federal Reserve has become more hawkish in terms of its interest rate policy outlook, compared to other central banks including the Bank of Canada.”

Plus, he said, anytime there is “a period of high uncertainty, high market stress, that’s typically conducive for U.S. dollar strength.”. 

Taken together, the combination of economic outperformance, aggressive monetary policy, and geopolitical tensions suggests a “stronger-for-longer” dollar. 

“The scene is set for the dollar to remain relatively strong and certainly to continue to trade far above a level that we would think is its long-term fair value,” he said.

For the Canadian dollar, the news over the past month has been about tariffs.

“At the beginning of February, the Trump administration announced much more Draconian tariffs than we and the market had expected,” Sager said. “It looks like the best assumption going forward is that there will be some additional tariffs on the Canadian economy.” 

The potential for further trade restrictions adds to existing headwinds for the loonie.

“At the margin, that will be negative for the Canadian dollar,” Sager said. “That will likely lead the Bank of Canada to ease its monetary policy a little more than it would have done.”

Sager said he expects the Canadian dollar to remain weak throughout the year. 

“It will continue to trade below a level which we would associate with its fair value — and quite meaningfully below that level, perhaps 15% cheap to that fair value,” he said. 

Global currencies are also feeling the effects. For the euro, Sager noted several downside risks. 

“The European economy has remained weak. The European Central Bank is cutting interest rates. Domestic European politics remain confused and difficult,” he said. 

In addition, he said competition from China — particularly in the electric vehicle sector — and weak Chinese demand for European exports are also weighing on the euro.

Tariff risks only add more uncertainty to the outlook.

“We had expected some targeted tariffs focused on the European auto sector. The risk is that tariffs are more extensive. This will be negative for the euro,” Sager said. 

Conversely, Sager said he holds a constructive view on the Japanese yen, which is traditionally seen as a safe-haven currency. Japan’s economic recovery and improving inflation dynamics also support the currency. 

“The Japanese economy finally, after three-and-a-half decades, seems to be achieving a self-sustaining recovery,” he said.

Emerging market currencies present a more nuanced picture. He said currencies from countries with strong economic fundamentals and high interest rates, like Brazil, Colombia, and South Africa, are appealing. However, global uncertainty remains a headwind. 

“EM assets broadly — whether it’s FX, bonds, equities — do not do well or as well as fundamentals would argue in periods of heightened uncertainty,” he said. 

Investors seeking to navigate today’s complex environment should focus on long-term fundamentals, he said. 

“There are always reasons to have nervousness and fear,” he said. “Stick with the long-term, stick with fundamentals, and a well-diversified portfolio. That would be my strong recommendation.”

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.