Taking stock of winning and not-so-winning investments in a world of rapid, unpredictable change
The world is changing. You can see it when you turn on the nightly news or read about it in the morning paper. You can feel it in the politics of the nation and in the conversations which you have with friends and family. You can track it day by day, even minute by minute, in the stock market numbers that flash before you on the screen.
Dramatic political and economic changes south of the border are resulting in a seismic shift in financial markets. Such times can be unsettling, in no small part because it’s impossible to know what comes next. The only thing that seems increasingly certain is that the years ahead will likely be very different from the years behind.
And that brings up an important question for snowbirds: how should you manage your money in a world in which the things that we took for granted – economic globalization, low inflation, global peace – now seem very much in the air? How exactly should we allocate our retirement portfolios to protect our wealth in the years to come or, at the very least, make them more resilient in the face of increasing economic threats and market volatility?
As we’ve said many times before, when it comes to broad-level economic and market movements, no one has a crystal ball. But it is possible to view these changes from a high level and make reasonable assumptions about how the fluctuations will reshape the economy, the markets and individual asset classes over the next several years.
With that in mind, here’s a list (by no means exhaustive) of ideas regarding the way in which a select group of investments, industries and asset classes will respond to the “new world disorder” in which we find ourselves.
How we should think about financial change
Before we get to that, it’s important that we give some thought to the nature of financial change. A lot of investors think of economics and investing in terms of “winning” or “losing” stocks; an economy that’s either going up or going down; certain geographic markets that have a bright future, while others are in decline; and so on.
This kind of black-and-white thinking is neither fair nor accurate. It’s true to say that some economies, asset classes and companies are likely to face headwinds in the years to come; obviously, sailing your economic ship is more difficult when the wind is against you. But it will never be impossible. There will always be some savvy businesspeople who find ways to make money in the most difficult of circumstances. As an investor, your job is to seek out these savvy businesspeople and invest alongside them, no matter where they are.
In the world of finance and economics, change is never totally negative or positive. Keep that in mind as you consider the following notes: not as a list of winners and losers, but as a catalogue of circumstances and situations that make your journey toward wealth a little harder, a little easier, or somewhere in between.
Tailwinds: gold and precious metals
Throughout history, financial uncertainty has generally been good for gold. When investors feel the need to preserve purchasing power, they have historically turned to the yellow metal. Today seems to be no exception. As political instability, financial uncertainty, currency volatility and stock market turmoil have taken over the headlines, gold has risen by a little less than 40% over the past year.
Will such gains continue? Well, if trade wars, inflation and geopolitical tensions continue, it’s certainly plausible that the tailwinds for gold (and, to a lesser extent, other precious metals such as silver and platinum) will remain strong. If you haven’t yet, it might be a good time to open a small position in precious metals – either physical metal, shares in a gold trust or ETF or gold mining stocks as a hedge against further uncertainty.
Headwinds: the “Magnificent Seven”
Over the past few years, many analysts have noted how the so-called “Magnificent Seven” tech stocks (Amazon, Google, Netflix, Meta, Apple, Tesla, Nvidia) have been driving a large portion of the U.S. stock market’s impressive gains. As U.S. markets have dropped in the face of global trade tensions, these same high flyers have taken it on the chin: as of the first week of April (the very start of the tariff turmoil), the “Mag 7” have collectively lost more than US$1 trillion of market capitalization. Ouch.
No doubt some of the drop is due to tariffs, political upheaval and recession fears. But it’s also likely that, after several years of outperformance, such stocks are simply coming back down to earth. Will they rebound sharply if the tariff turmoil is resolved and we manage to avoid a long, deep recession? Perhaps. But investors would do well to proceed with caution. Clearly, some of these high flyers are excellent businesses. But they’ll be facing some pretty stiff winds in their attempt to regain the lofty multiples which they once commanded, at least over the short term.
Crosswinds: other tech stocks
The sell-off in mega-cap tech has created opportunities in other technology stocks. But the opportunity varies across the sector. Many hardware companies source their chips, components and assembly lines from China and Southeast Asia, exposing them to tariff-induced supply-chain problems. True, the U.S. administration has recently signalled that many of these components will be exempt from tariffs, but who knows for how long. Meanwhile, tech services (software, cybersecurity, AI, etc.) are currently exempt from tariff action but, as countries consider the best way to hit back at U.S. tariffs, they may turn up tariffs on Silicon Valley software in retaliation.
As we said about the Magnificent Seven, there’s no doubt that many tech stocks are excellent businesses. But if you’re looking to buy the dip, be prepared to do your research, and zero in on those businesses least exposed to the tariff noise and relatively immune to recession-related IT cutbacks. That will likely serve you better than taking a broader, sector-wide approach…at least for the next little while.
Headwinds: the Canadian dollar
These are tough times for the Canuck buck. U.S. trade tariffs, tit-for-tat trade retaliations and the threat of a long, deep recession have put tremendous pressure on the Canadian dollar; the longer such uncertainty persists, the greater the pressure may be. If the Bank of Canada responds to a weak economy by cutting its trend-setting overnight interest rate in an effort to stimulate domestic growth (which it’s expected to do), it’s possible that the dollar might struggle even further.
Will things get back to normal if the threat of tariffs or recession suddenly abates? Let’s hope so. But international currency movements are notoriously difficult to predict and, currently, there are simply too many variables to accurately predict what will happen with tariffs. What we can predict, however, is that there will likely be a lot of turbulence in the Canadian economic picture for the foreseeable future, and that will likely create headwinds for the loonie for some time.
Tailwinds: the “boring” portfolio
If there’s one area of the stock market that has stood up pretty well in the current tariff turmoil, it’s the steady-eddy, old-economy companies that have been the backbone of the economy for years. Think of your local hydro provider, your cellphone service provider, convenience and discount stores, grocers, railroads and similar “boring” companies that sell hard-to-replace products and services to local customers. Those who made the decision to allocate a portion of their portfolios to such boring companies probably regretted their decisions as high-flying tech stocks soared to the stratosphere. But they’re certainly smiling now.
Will these boring stocks be immune to a broader market decline? Don’t count on it. But they’ll likely be far less volatile than the export-oriented businesses such as cars, aluminum, lumber or consumer appliances. Will they make you rich? Probably not. But their slow growth and steady dividends will likely make them a relatively safe port in the storm.
Headwinds: the cost of everything
Despite the efforts of some U.S. politicians to convince us otherwise, tariffs are a kind of tax on the goods and services which we buy from overseas. That tax is paid first by the companies that import these goods and services, who then largely pass that cost on to us. In practical terms, this means that unless all of this tariff trouble is resolved relatively quickly, we should all expect the cost of everything from produce to home appliances to automobiles to luxury watches to increase in the months to come.
With the start date for international tariffs changing week by week, and the final levy on many products still very much in the air, it’s tough to say exactly how much prices will rise, for how long and on what. But if you’re looking to buy a big-ticket item sometime in the next year or so, it might make sense to think about pulling your purchase date forward before inflation truly starts to stick.
Headwinds: banks and financial services
Canadian banks and financial services companies have long been the foundation of many snowbird portfolios: they’re highly profitable, pay generous dividends and enjoy solid balance sheets. At the same time, their profits are inherently tied to the health of the overall economy – and that’s a significant challenge which they’ll be facing over the next several months. If the proposed tariffs stay in place, we’ll likely be seeing higher unemployment, a muted real estate market and a lot of economic uncertainty in Canada. That will make it relatively tough for banks to grow their portfolio of profit-making loans.
The same is almost certainly true for U.S. and international banks, as well as for other financial companies such as credit cards, insurance companies and asset managers: it’s not that they’ll be hit by tariffs directly, but the effects of a lengthy recession will present a significant challenge for months to come.
For individuals with a suitable long-term investment horizon, this may be a good time to increase their exposure to the financial sector. But the key word is “long-term”; over the next several months, the winds will likely be blowing in the face of the financial sector, and quite strongly.
Headwinds: residential real estate
It’s not surprising that, in the face of the tariff uncertainty and the threats of recession, most residential real estate markets in Canada are reporting fewer sales and increased DOM (days on market) for most listings. Will this trend reverse if tariffs are rescinded or a deal is negotiated? Maybe. But it’s just as likely that the tariff trouble will push Canada into a recession, and that the market for residential real estate will become even more challenged than it is now.
If you happen to be looking for a new home or rental property, this might be very good news: you could see reduced prices in the months to come. The same goes for investors looking to put their money to work in publicly listed real estate investment trusts. But for current homeowners, the threat of recession is likely to make for a very difficult real estate market for several months to come, with a distinct possibility of declines in home values in select markets.
Tailwinds: the diversified portfolio
Over the past several weeks, most major world markets have seen a strong, sharp correction downward. However, some markets have fared better than others: U.S. and Asian markets have been hit hard, European markets have done somewhat better and Canada is somewhere in between. The same can be said for different asset classes: while stocks have suffered, bonds have held their own, real estate has been a mixed bag and gold has performed well.
There’s a clear, simple lesson here about the value of portfolio diversification: while there’s no geographic market or asset class that offers complete immunity from volatility, those who chose to spread their portfolios across a multitude of markets and assets have probably done much better than those who went “all in” on technology stocks, for example, or in the U.S. market. Going forward, that’s likely to remain the case.
Tailwinds: health care
Health care is another industry that has historically been considered a safe harbour in financial storms – people are generally willing to spend money on their own health no matter how sick the economy may be. The current economic turmoil looks to be no different, as major drug companies have so far been exempted from the worst of the tariffs, while other segments of the health-care industry (health-related real estate, biotech, etc.) note little or no impact on their business.
The big question, of course, is whether this will continue. Tariffs on drugs could be introduced at any time (indeed, recent rumblings suggest that this may happen within the next few months), and medical device and equipment makers may be vulnerable to tariffs on critical minerals and electronic components coming from overseas. But, for now, investors seeking a place to wait out the storm might want to take a look at this sector.
Tailwinds: defence-industry stocks
The world seems as if it’s going to be a more-dangerous, less-secure place over the next several years. And, while rising geopolitical tensions are generally bad news for most businesses, they are very good news for any company involved in the development of armaments, airplanes, cybersecurity or related industries. America’s increasing calls for allies to increase defence spending adds even further momentum to the trend. Many countries in Europe seem to have already gotten the message: over the past several months, defence firms’ stocks <= I added an apostrophe and additional word, correct? in Europe have risen sharply on news of increased spending on defence by Germany and other nations.
If you’re looking for one area that should see very strong growth in the next several years, it’s the defence industry. A broad-based ETF might be a good choice here, as nearly every industry sub-sector is expected to see increased demand over time.
Crosswinds: energy
There are a lot of things to like about Canadian energy, even in the face of the current turmoil. Most of Canada’s major oil and gas companies report that they are compliant with existing trade agreements, which should limit their tariff exposure. Many of them have also spent the past several years paying down debt, which puts them in a good position to weather any economic storm. And, of course, the weakening loonie is positive news for most energy companies: while their production expenses are in Canadian dollars, their product is priced in U.S. dollars and the spread flows directly to the bottom line.
On the other hand, the threat of a tariff-induced recession has put pressure on oil prices, which has sent the price of energy stocks tumbling. Other parts of the energy sector have been hit hard, too: renewable energy companies have seen a sharp sell-off in the face of diminished support from the new American administration. Uranium-related stocks have also hit a bump in the road, as increased supply and the re-jigging of demand assumptions have led to weaker prices.
What does all of this mean for investors? Well, there’s no doubt that the recent market turmoil has created opportunities across the Canadian energy sector. But it’s difficult to know how much the threat of recession will cloud the horizon. At the very least, investors will need a long-term change of next word okay? => plan and a stomach for volatility if they want to add to their energy weighting over the months to come.
Crosswinds: food and agriculture
You’d think that agriculture might provide some safety from the tariff trouble: after all, no matter how high tariffs go, people have to eat. The reality is, however, that different areas of the agriculture and food industry will respond very differently to the threat of tariffs. For investors, this presents a rather mixed picture.
Tariffs on the base inputs that go into food production (potash, phosphate, nitrogen) will be relatively low, making companies in this business a solid defensive play. But the picture looks decidedly less positive for farmers, seafood processors, the dairy industry, packaged food manufacturers and other food producers: they’ll likely face a wide degree of tariff levels, as well as lower spending levels if we enter a recession. Meanwhile, over in the grocery aisle, grocery chains are relatively insulated from cross-border tariffs because they deal locally and have the ability to pass on price increases to their customers (as many of us have noticed over the past couple of years).
Bottom line: this is another area in which investors need to tread carefully and do their homework before committing any new money: some sub-sectors may indeed live up to their reputation as safe harbours, while others will likely be among the very hardest hit by hurricane-force economic winds.
A final note on tariffs …
The tariff situation remains exceptionally fluid and uncertainty about the final form of any tariff regimen remains exceptionally high. Changes to the list of goods and services seem to be occurring on an almost-weekly basis, and rumours about potential changes can send the stock market soaring or plunging on a dime.
It’s likely that this state of uncertainty will persist for some time (indeed, some have suggested that this may be the entire point). It is, therefore, exceptionally challenging to make any long-term predictions about the effect which they may or may not have – in fact, some of what we’ve written here may be out of date by the time you read it!
Whatever happens, however, it’s important to remember the old adage about crisis and opportunity: for those willing to put in the effort and do their research, times of economic crisis often present an extraordinary opportunity to build wealth. While tariff troubles certainly will create economic turbulence, for those investors willing to understand the change and adapt their portfolios to take advantage of it, there may well be smooth sailing on the other side of the current storm.
Taking stock of winning and not-so-winning investments in a world of rapid, unpredictable change
The world is changing. You can see it when you turn on the nightly news or read about it in the morning paper. You can feel it in the politics of the nation and in the conversations which you have with friends and family. You can track it day by day, even minute by minute, in the stock market numbers that flash before you on the screen.
Dramatic political and economic changes south of the border are resulting in a seismic shift in financial markets. Such times can be unsettling, in no small part because it’s impossible to know what comes next. The only thing that seems increasingly certain is that the years ahead will likely be very different from the years behind.
And that brings up an important question for snowbirds: how should you manage your money in a world in which the things that we took for granted – economic globalization, low inflation, global peace – now seem very much in the air? How exactly should we allocate our retirement portfolios to protect our wealth in the years to come or, at the very least, make them more resilient in the face of increasing economic threats and market volatility?
As we’ve said many times before, when it comes to broad-level economic and market movements, no one has a crystal ball. But it is possible to view these changes from a high level and make reasonable assumptions about how the fluctuations will reshape the economy, the markets and individual asset classes over the next several years.
With that in mind, here’s a list (by no means exhaustive) of ideas regarding the way in which a select group of investments, industries and asset classes will respond to the “new world disorder” in which we find ourselves.
How we should think about financial change
Before we get to that, it’s important that we give some thought to the nature of financial change. A lot of investors think of economics and investing in terms of “winning” or “losing” stocks; an economy that’s either going up or going down; certain geographic markets that have a bright future, while others are in decline; and so on.
This kind of black-and-white thinking is neither fair nor accurate. It’s true to say that some economies, asset classes and companies are likely to face headwinds in the years to come; obviously, sailing your economic ship is more difficult when the wind is against you. But it will never be impossible. There will always be some savvy businesspeople who find ways to make money in the most difficult of circumstances. As an investor, your job is to seek out these savvy businesspeople and invest alongside them, no matter where they are.
In the world of finance and economics, change is never totally negative or positive. Keep that in mind as you consider the following notes: not as a list of winners and losers, but as a catalogue of circumstances and situations that make your journey toward wealth a little harder, a little easier, or somewhere in between.
Tailwinds: gold and precious metals
Throughout history, financial uncertainty has generally been good for gold. When investors feel the need to preserve purchasing power, they have historically turned to the yellow metal. Today seems to be no exception. As political instability, financial uncertainty, currency volatility and stock market turmoil have taken over the headlines, gold has risen by a little less than 40% over the past year.
Will such gains continue? Well, if trade wars, inflation and geopolitical tensions continue, it’s certainly plausible that the tailwinds for gold (and, to a lesser extent, other precious metals such as silver and platinum) will remain strong. If you haven’t yet, it might be a good time to open a small position in precious metals – either physical metal, shares in a gold trust or ETF or gold mining stocks as a hedge against further uncertainty.
Headwinds: the “Magnificent Seven”
Over the past few years, many analysts have noted how the so-called “Magnificent Seven” tech stocks (Amazon, Google, Netflix, Meta, Apple, Tesla, Nvidia) have been driving a large portion of the U.S. stock market’s impressive gains. As U.S. markets have dropped in the face of global trade tensions, these same high flyers have taken it on the chin: as of the first week of April (the very start of the tariff turmoil), the “Mag 7” have collectively lost more than US$1 trillion of market capitalization. Ouch.
No doubt some of the drop is due to tariffs, political upheaval and recession fears. But it’s also likely that, after several years of outperformance, such stocks are simply coming back down to earth. Will they rebound sharply if the tariff turmoil is resolved and we manage to avoid a long, deep recession? Perhaps. But investors would do well to proceed with caution. Clearly, some of these high flyers are excellent businesses. But they’ll be facing some pretty stiff winds in their attempt to regain the lofty multiples which they once commanded, at least over the short term.
Crosswinds: other tech stocks
The sell-off in mega-cap tech has created opportunities in other technology stocks. But the opportunity varies across the sector. Many hardware companies source their chips, components and assembly lines from China and Southeast Asia, exposing them to tariff-induced supply-chain problems. True, the U.S. administration has recently signalled that many of these components will be exempt from tariffs, but who knows for how long. Meanwhile, tech services (software, cybersecurity, AI, etc.) are currently exempt from tariff action but, as countries consider the best way to hit back at U.S. tariffs, they may turn up tariffs on Silicon Valley software in retaliation.
As we said about the Magnificent Seven, there’s no doubt that many tech stocks are excellent businesses. But if you’re looking to buy the dip, be prepared to do your research, and zero in on those businesses least exposed to the tariff noise and relatively immune to recession-related IT cutbacks. That will likely serve you better than taking a broader, sector-wide approach…at least for the next little while.
Headwinds: the Canadian dollar
These are tough times for the Canuck buck. U.S. trade tariffs, tit-for-tat trade retaliations and the threat of a long, deep recession have put tremendous pressure on the Canadian dollar; the longer such uncertainty persists, the greater the pressure may be. If the Bank of Canada responds to a weak economy by cutting its trend-setting overnight interest rate in an effort to stimulate domestic growth (which it’s expected to do), it’s possible that the dollar might struggle even further.
Will things get back to normal if the threat of tariffs or recession suddenly abates? Let’s hope so. But international currency movements are notoriously difficult to predict and, currently, there are simply too many variables to accurately predict what will happen with tariffs. What we can predict, however, is that there will likely be a lot of turbulence in the Canadian economic picture for the foreseeable future, and that will likely create headwinds for the loonie for some time.
Tailwinds: the “boring” portfolio
If there’s one area of the stock market that has stood up pretty well in the current tariff turmoil, it’s the steady-eddy, old-economy companies that have been the backbone of the economy for years. Think of your local hydro provider, your cellphone service provider, convenience and discount stores, grocers, railroads and similar “boring” companies that sell hard-to-replace products and services to local customers. Those who made the decision to allocate a portion of their portfolios to such boring companies probably regretted their decisions as high-flying tech stocks soared to the stratosphere. But they’re certainly smiling now.
Will these boring stocks be immune to a broader market decline? Don’t count on it. But they’ll likely be far less volatile than the export-oriented businesses such as cars, aluminum, lumber or consumer appliances. Will they make you rich? Probably not. But their slow growth and steady dividends will likely make them a relatively safe port in the storm.
Headwinds: the cost of everything
Despite the efforts of some U.S. politicians to convince us otherwise, tariffs are a kind of tax on the goods and services which we buy from overseas. That tax is paid first by the companies that import these goods and services, who then largely pass that cost on to us. In practical terms, this means that unless all of this tariff trouble is resolved relatively quickly, we should all expect the cost of everything from produce to home appliances to automobiles to luxury watches to increase in the months to come.
With the start date for international tariffs changing week by week, and the final levy on many products still very much in the air, it’s tough to say exactly how much prices will rise, for how long and on what. But if you’re looking to buy a big-ticket item sometime in the next year or so, it might make sense to think about pulling your purchase date forward before inflation truly starts to stick.
Headwinds: banks and financial services
Canadian banks and financial services companies have long been the foundation of many snowbird portfolios: they’re highly profitable, pay generous dividends and enjoy solid balance sheets. At the same time, their profits are inherently tied to the health of the overall economy – and that’s a significant challenge which they’ll be facing over the next several months. If the proposed tariffs stay in place, we’ll likely be seeing higher unemployment, a muted real estate market and a lot of economic uncertainty in Canada. That will make it relatively tough for banks to grow their portfolio of profit-making loans.
The same is almost certainly true for U.S. and international banks, as well as for other financial companies such as credit cards, insurance companies and asset managers: it’s not that they’ll be hit by tariffs directly, but the effects of a lengthy recession will present a significant challenge for months to come.
For individuals with a suitable long-term investment horizon, this may be a good time to increase their exposure to the financial sector. But the key word is “long-term”; over the next several months, the winds will likely be blowing in the face of the financial sector, and quite strongly.
Headwinds: residential real estate
It’s not surprising that, in the face of the tariff uncertainty and the threats of recession, most residential real estate markets in Canada are reporting fewer sales and increased DOM (days on market) for most listings. Will this trend reverse if tariffs are rescinded or a deal is negotiated? Maybe. But it’s just as likely that the tariff trouble will push Canada into a recession, and that the market for residential real estate will become even more challenged than it is now.
If you happen to be looking for a new home or rental property, this might be very good news: you could see reduced prices in the months to come. The same goes for investors looking to put their money to work in publicly listed real estate investment trusts. But for current homeowners, the threat of recession is likely to make for a very difficult real estate market for several months to come, with a distinct possibility of declines in home values in select markets.
Tailwinds: the diversified portfolio
Over the past several weeks, most major world markets have seen a strong, sharp correction downward. However, some markets have fared better than others: U.S. and Asian markets have been hit hard, European markets have done somewhat better and Canada is somewhere in between. The same can be said for different asset classes: while stocks have suffered, bonds have held their own, real estate has been a mixed bag and gold has performed well.
There’s a clear, simple lesson here about the value of portfolio diversification: while there’s no geographic market or asset class that offers complete immunity from volatility, those who chose to spread their portfolios across a multitude of markets and assets have probably done much better than those who went “all in” on technology stocks, for example, or in the U.S. market. Going forward, that’s likely to remain the case.
Tailwinds: health care
Health care is another industry that has historically been considered a safe harbour in financial storms – people are generally willing to spend money on their own health no matter how sick the economy may be. The current economic turmoil looks to be no different, as major drug companies have so far been exempted from the worst of the tariffs, while other segments of the health-care industry (health-related real estate, biotech, etc.) note little or no impact on their business.
The big question, of course, is whether this will continue. Tariffs on drugs could be introduced at any time (indeed, recent rumblings suggest that this may happen within the next few months), and medical device and equipment makers may be vulnerable to tariffs on critical minerals and electronic components coming from overseas. But, for now, investors seeking a place to wait out the storm might want to take a look at this sector.
Tailwinds: defence-industry stocks
The world seems as if it’s going to be a more-dangerous, less-secure place over the next several years. And, while rising geopolitical tensions are generally bad news for most businesses, they are very good news for any company involved in the development of armaments, airplanes, cybersecurity or related industries. America’s increasing calls for allies to increase defence spending adds even further momentum to the trend. Many countries in Europe seem to have already gotten the message: over the past several months, defence firms’ stocks <= I added an apostrophe and additional word, correct? in Europe have risen sharply on news of increased spending on defence by Germany and other nations.
If you’re looking for one area that should see very strong growth in the next several years, it’s the defence industry. A broad-based ETF might be a good choice here, as nearly every industry sub-sector is expected to see increased demand over time.
Crosswinds: energy
There are a lot of things to like about Canadian energy, even in the face of the current turmoil. Most of Canada’s major oil and gas companies report that they are compliant with existing trade agreements, which should limit their tariff exposure. Many of them have also spent the past several years paying down debt, which puts them in a good position to weather any economic storm. And, of course, the weakening loonie is positive news for most energy companies: while their production expenses are in Canadian dollars, their product is priced in U.S. dollars and the spread flows directly to the bottom line.
On the other hand, the threat of a tariff-induced recession has put pressure on oil prices, which has sent the price of energy stocks tumbling. Other parts of the energy sector have been hit hard, too: renewable energy companies have seen a sharp sell-off in the face of diminished support from the new American administration. Uranium-related stocks have also hit a bump in the road, as increased supply and the re-jigging of demand assumptions have led to weaker prices.
What does all of this mean for investors? Well, there’s no doubt that the recent market turmoil has created opportunities across the Canadian energy sector. But it’s difficult to know how much the threat of recession will cloud the horizon. At the very least, investors will need a long-term change of next word okay? => plan and a stomach for volatility if they want to add to their energy weighting over the months to come.
Crosswinds: food and agriculture
You’d think that agriculture might provide some safety from the tariff trouble: after all, no matter how high tariffs go, people have to eat. The reality is, however, that different areas of the agriculture and food industry will respond very differently to the threat of tariffs. For investors, this presents a rather mixed picture.
Tariffs on the base inputs that go into food production (potash, phosphate, nitrogen) will be relatively low, making companies in this business a solid defensive play. But the picture looks decidedly less positive for farmers, seafood processors, the dairy industry, packaged food manufacturers and other food producers: they’ll likely face a wide degree of tariff levels, as well as lower spending levels if we enter a recession. Meanwhile, over in the grocery aisle, grocery chains are relatively insulated from cross-border tariffs because they deal locally and have the ability to pass on price increases to their customers (as many of us have noticed over the past couple of years).
Bottom line: this is another area in which investors need to tread carefully and do their homework before committing any new money: some sub-sectors may indeed live up to their reputation as safe harbours, while others will likely be among the very hardest hit by hurricane-force economic winds.
A final note on tariffs …
The tariff situation remains exceptionally fluid and uncertainty about the final form of any tariff regimen remains exceptionally high. Changes to the list of goods and services seem to be occurring on an almost-weekly basis, and rumours about potential changes can send the stock market soaring or plunging on a dime.
It’s likely that this state of uncertainty will persist for some time (indeed, some have suggested that this may be the entire point). It is, therefore, exceptionally challenging to make any long-term predictions about the effect which they may or may not have – in fact, some of what we’ve written here may be out of date by the time you read it!
Whatever happens, however, it’s important to remember the old adage about crisis and opportunity: for those willing to put in the effort and do their research, times of economic crisis often present an extraordinary opportunity to build wealth. While tariff troubles certainly will create economic turbulence, for those investors willing to understand the change and adapt their portfolios to take advantage of it, there may well be smooth sailing on the other side of the current storm.