Rhythmic Reasoning_Full Report_Final_EN - Flipbook - Page 9
RHYTHMIC REASONING | TEMPO, TIMING AND TUNING
G LO B A L I N V E S T M E N T S T R AT E G Y
Derek Holt
Myles Zyblock
Vice President, Scotiabank Economics
Chief Investment Strategist, ScotiaGAM
KEY CONCLUSIONS
•
On balance, economic conditions remain resilient and are
supportive of corporate profit expansion.
Key risks to watch for in 2026 include the labour market,
whether tariffs translate into higher inflation, and the
upcoming USMCA negotiations, to name a few.
Performance breadth has widened compared to the last
couple of years, but concerns about elevated valuations and
concentration continue to linger.
A measured approach to portfolio construction through
diversification across asset classes and maintaining a longterm perspective is key to managing idiosyncratic risks.
•
•
•
TRADE RISKS HAVE RECEDED FROM PEAK LEVELS BUT REMAIN
FAR FROM RESOLVED
Investor sentiment this year has been heavily influenced by White
House policy and its goal to remake trade relationships with the
blunt instrument that is tariffs. As it stands today, there are still
some outstanding issues with respect to global trade relationships,
including the staying power of high tariff rates on trading partners
like India and Brazil, as well as a lack of clarity on what final tariffs on
key sectors like pharmaceuticals and semiconductors will look like.
Global equity markets have not missed a beat post-Liberation Day,
buoyed by thawing trade tensions and healthy corporate results.
Earnings growth forecasts for this year and next remain healthy for
both the global benchmark, as well as individual markets like the
U.S. and Canada. Chatter around tariffs and a possible recession
have also died down, as evidenced by news trends data (Fig. 2).
Fig. 2: Chatter around “recession” and
“tariffs” has died down in recent months
40
400
# of stories pertaining to these topics
(thousands)
300
20
100
10
0
Mar 2025
May 2025
Tariffs - LHS
12
60
9
45
6
30
3
15
30
200
0
Jan 2025
Fig. 1: Market volatility has eased as
trade policy uncertainty has waned
0
Jan 2025
Powers Act as illegal. If the tariffs are struck down, importers could
claim billions in refunds for tariffs already paid. While these issues
remain unresolved, it is fair to say that trade policy uncertainty
has diminished in recent months, and along with it, so has market
volatility (Fig. 1).
Jul 2025
Sep 2025
Recession - RHS
Source: Bloomberg Finance LP, Scotia Wealth Management
Encouragingly, equity market breadth has improved compared
to the last two years that saw dominant performance from the
Magnificent 7 (Mag 7) cohort. After these accounted for ~60% of
the S&P 500’s price return in each of 2023 and 2024, performance
has been far more broad-based in 2025 (Fig. 3).
0
Mar 2025
May 2025
Jul 2025
Bloomberg U.S. Trade Policy Uncertainty Index - LHS
Sep 2025
VIX Index - RHS
Source: Bloomberg Finance LP, Scotia Wealth Management
Additionally, the legality of these tariffs will be assessed later
this year by the Supreme Court following rulings by the Court of
International Trade and the Federal Circuit Court that deemed
the levies imposed under the International Emergency Economic
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