Transcript: Tariffs will be top of mind for investors going into 2025
Corrado Tiralongo of Canada Life Investment Management says global growth will be lower than historical standards
- Featuring: Corrado Tiralongo
- December 17, 2024 December 16, 2024
- 13:01
iStockphoto/erhui1979
Corrado Tiralongo
Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and powered by Canada Life. For today’s Soundbites, we’re looking ahead with Corrado Tiralongo, CIO and vice-president of asset allocation with Canada Life Investment Management. He offers a market outlook for 2025, including a look at fixed income and equities. And we started by asking what he foresees for the global economy in 2025.
Corrado Tiralongo (CT): We believe the global economy is going to grow about 3%, which is similar to this year’s growth, but comparatively weak by historical standards. There’s several challenges. One, the current threat of tariffs and the expectation of a trade war, which we don’t foresee happening. Two, China is going through issues with their economy and structural growth issues. Although China will continue to grow at a decent clip, it’ll be far below the growth rates they’ve seen in the past. And three, the Eurozone is going to be trapped in a period of ultra-low growth. So, lower global economic growth but not so weak that this should upend equities and other risky assets.
Tariffs and the impact on global trade
CT: Global trade is going to soften but it won’t collapse in the face of tariff threats, despite the current news media. The warnings about a spiral into global trade war are overdone. The likelihood of tariffs and other protectionist barriers are going to distort the allocation of resources but I think what’s going to happen is that there’s going to be a great deal of negotiation. There will probably be some sort of basic tariff across a majority of goods, but as negotiations take place, they’ll likely get watered down. But I think the headline news is going to be scary. It’s going to be at top-of-mind for many investors.
How global conflict could impact markets
CT: The geopolitical upheaval won’t upset the macro story. We think investors and commentators are overestimating the impact of one-off events. The way we think about it is that geopolitics is going to dominate the headlines in 2025. But the macro consequences will be misunderstood. 2025 is going to be another year where geopolitical shifts and shocks are going to occur. But I think the consensus is going to misjudge the fallout. In our view, the best way to think about these geopolitical shifts, remains in the lens of a rivalry between the U.S. and China. This is going to grab headlines for sure. But the economic effect of this process is going to be felt over years rather than months.
What to expect for fixed income
CT: On the fixed-income front, higher interest rates will continue to weigh on government bonds globally. The upcoming U.S. administration means that yields will likely be higher in the U.S., given the fiscal and protectionist proposals that point to stronger inflationary pressures. We think the U.S. Federal Reserve is going to keep policy tighter than we had initially expected. And we expect the easing cycle to settle down at a 3.5% to 3.75% range, rather than the 3% to 3.25% that we had originally expected. We expect bond yields in most developed markets to fall back by the end of 2025, but at a slower pace, and probably resting at a higher level than we had anticipated before.
How equities might play out in 2025
CT: We believe U.S. equities will likely be the quote-unquote fastest horse in 2025, but investors shouldn’t put all their eggs in one basket. There are compelling valuations outside of U.S. growth and technology stocks, but we don’t think they’ll get the attention of investors until the AI bubble has run its course. For instance, small cap, value, etc., are at probably their lowest decile levels, relative to their historical valuations. Their valuations are compelling, but valuations are poor timing indicators. So, U.S. equities will continue to be strong. There are compelling valuations outside of domestic U.S. stocks.
And finally, how would he characterize the current moment as we head into 2025?
CT: There’s a great deal of political uncertainty as a result of the U.S. election. Investors are going to be bombarded with lots of headline news that will challenge investor sentiment in 2025. But underlying that, I think there’s still positive good news. We just need to look past the headlines.
Well, those are today’s Soundbites, brought to you by Investment Executive and powered by Canada Life. Our thanks again to Corrado Tiralongo of Canada Life Investment Management. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.
**
Go back to the article.