Two alternate realities are unfolding before our eyes.
There’s the real world, where the global trade order has fractured and tariffs menace economies everywhere.
And then there’s the stock market, where everything is great.
U.S. equities have stormed back from a spring upheaval, gaining 20 per cent in two months, despite the self-inflicted harms of the country’s trade wars, grave concerns over mounting debt and enormous deficits, and the endless chaos sown by the Trump administration.
Even Canada, which is immersed in what Prime Minister Mark Carney calls “the biggest crisis of our lifetimes,” has a stock market trading at a record high. The S&P/TSX Composite Index TXCX set a new high-water mark to end the week, even though data for April showed Canadian exports being crushed by tariffs.
What gives? Big divergences like this happen from time to time. Think back to 2020, when a bull market for the ages got under way just a couple of weeks into a once-in-a-century pandemic, as the world was still familiarizing itself with life in COVID-19 lockdown.
The catalyst then was a multitrillion-dollar wave of emergency stimulus that stopped an economic depression in its tracks. The current disconnect is not so easy to reconcile.
Traders seem to be fearless. Retail investors especially have hurled themselves into the stock market this year, aggressively buying dips even as economic readings have steadily worsened.
“It doesn’t make sense to me,” said Rebecca Teltscher, a portfolio manager at Newhaven Asset Management Inc. in Toronto. “We’ve gotten into an era where economic cycles no longer matter to the traditional investor.”
No one is longing for the panic that engulfed financial markets earlier this year, but it at least felt appropriate for the moment.
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Faith in U.S. President Donald Trump’s business-friendly agenda quickly evaporated when he picked fights with nearly every country on Earth simultaneously and announced absurdly high tariffs certain to torpedo the global economy.
But instead of running for the exits, what did retail investors do? They doubled down.
In April – one of the most volatile months in stock market history – retail traders set a monthly record by plowing a net of US$40-billion into U.S. stocks, according to JPMorgan Chase data.
You could argue the average Canadian investor had even more reason to be fearful, given the breakdown of the country’s biggest trading relationship. They, too, were unfazed.
“We’ve really seen the retail investor continue to show buying confidence despite all the market uncertainty,” said Stacey Petersen, head of QTrade Direct Investing.
The Vancouver-based digital brokerage saw buy orders account for nearly two-thirds of its trading volume in April. That’s consistent with the level of enthusiasm for buying the dip the platform saw during meme-stock mania in 2021, or the COVID-19 market crash the year before.
Stock exchange-traded funds listed in Canada have had inflows of $24-billion so far this year, easily outpacing even the market boom of 2021, when the S&P/TSX Composite Index rose by 22 per cent, according to National Bank data.
Of course, these investors have been rewarded for their boldness. The market has pretty much made a full recovery, wiping away all traces of concern that accumulated since Mr. Trump took office.
Fearless Canadian investors storm into stock funds at a record pace.
Inflows into equity exchange-traded funds, in billions of dollars
the globe and mail, source:National Bank Financial ETF Research
Fearless Canadian investors storm into stock funds at a record pace.
Inflows into equity exchange-traded funds, in billions of dollars
the globe and mail, source:National Bank Financial ETF Research
Fearless Canadian investors storm into stock funds at a record pace.
Inflows into equity exchange-traded funds, in billions of dollars
the globe and mail, source:National Bank Financial ETF Research
“This is all based on what?” Ms. Teltscher said. “Nothing’s been fixed and Trump is still in power for the next three years.”
The market was clearly relieved when Mr. Trump balked on most of the ludicrous “reciprocal” tariffs he announced in early April. But his administration says other tariffs are here to stay.
After levies on imported steel and aluminum were doubled to 50 per cent this week, the effective U.S. tariff rate now sits at 15.6 per cent – the highest since 1937, according to the Budget Lab at Yale University.
Those tariffs are largely to blame for the economic softening seen across a broad range of indicators.
This week, the Organization for Economic Co-operation and Development cut its forecast for U.S. growth to 1.6 per cent this year – barely more than half of last year’s pace, citing “rising trade costs.”
A slowdown has dragged down the manufacturing sector worldwide this year, with Canada experiencing the worst factory performance across major developed economies.
Consumer confidence indexes remain near record lows in the United States and Canada.
Housing markets in both countries are virtually frozen. There were a staggering 34 per cent more home sellers than buyers in the U.S. market in April, according to real estate and mortgage company Redfin. A year ago, that gap was around 6 per cent.
“Nearly every single data point I’m looking at – even the ones that are still positive, like retail spending – is trending downwards,” Ms. Teltscher said.
But who wants to dwell on all that when everything in the stock market is pointing up and to the right?
