\n U.S. equity market volatility has jumped recently, and major indexes have\n pulled back. As of this writing, the S&P 500 is down\n 6.6 percent from its mid-February all-time high, with five of the\n Magnificent 7 stocks (Alphabet, Amazon, Apple, Meta, Microsoft,\n NVIDIA, Tesla) underperforming. The tech-heavy Nasdaq has fallen\n 9.8 percent during the same period.\n <\/p>\n \n
\n \n Now, Wall Street has become uneasy about the president\u2019s economic agenda\n following some hefty tariffs levied on Canada and Mexico, additional\n tariffs layered onto China, and the Trump team\u2019s statements that big\n \u201creciprocal\u201d tariff announcements are coming in April. The market\u2019s\n jitters persisted on Thursday despite news that a tariff reprieve had been\n issued for Canadian and Mexican imports until April 2.\n <\/p>\n \n Wall Street previously seemed to be operating under the assumption that\n any large tariffs would be mainly used as negotiating leverage and would\n be short-lived. Now some market participants aren\u2019t so sure.\n <\/p>\n \n Also, the on-off-on-off nature of the Trump team\u2019s tariff announcements\n has generated uncertainties \u2013 and the market doesn\u2019t like uncertainties.\n <\/p>\n \n RBC Global Asset Management Inc.\u2019s Chief Economist Eric Lascelles still\n thinks it\u2019s more likely than not that the bulk of the tariffs will be\n short-lived, but we can\u2019t ignore the economic risks associated with them.\n The longer high tariff rates last, the greater the negative impact on U.S.\n GDP growth and inflation, and the greater the GDP hit for Canada and\n Mexico, according to Lascelles\u2019 estimates.\n <\/p>\n \n We\u2019re also mindful Trump could overplay his hand. As our colleague Atul\n Bhatia wrote in this insightful\n \n For more information, we recommend Bhatia\u2019s\n \n Q1 economic data has deteriorated:<\/strong> A range of\n economic data has worsened at least moderately, including various\n inflation gauges, consumer confidence, retail sales, service sector\n activity, and various employment indicators.\n <\/p>\n \n While some of this may have occurred regardless of Trump\u2019s policy\n decisions, we think tariff uncertainties have weighed on sentiment\n indicators and caused inflation expectations to jump.\n <\/p>\n \n Despite the weaker data, economists\u2019 consensus forecast for Q1 GDP growth\n has dipped only slightly from a peak of 2.25 percent in January to\n 2.17 percent currently (this forecast is typically slow to adjust). But\n some gauges that attempt to forecast growth in real time by factoring in\n the incoming economic data have lurched down. The Q1 GDP growth projection\n by the closely followed Atlanta Fed GDPNow Forecast, for example, has\n flipped from +2.32 percent to -2.41 percent in just the past\n week (this is subject to change as more Q1 data is factored in).\n <\/p>\n \n For now, Lascelles believes the damage to Q1 won\u2019t be as great as\n currently feared. But in the past, the Atlanta Fed gauge has been a good\n directional<\/em> signal \u2013 meaning if it moves by a lot in one direction or the\n other and is much different than the consensus forecast, it\u2019s usually an\n indication that the consensus forecast is off the mark.\n <\/p>\n \n Full-year 2025 GDP growth concerns have emerged:<\/strong\n > The notion that Q1 GDP could be soft or worse has raised the\n possibility that full-year 2025 GDP growth could end up shy of the\n 2.28 percent consensus forecast, especially if high tariffs remain in\n place.\n <\/p>\n \n While we currently don\u2019t foresee a recession on the\n \n RBC Capital Markets, LLC\u2019s Head of U.S. Equity Strategy Lori Calvasina\n notes that historically the sweet spot for U.S. equities is when annual\n GDP growth has registered between 2.1 percent to 3.0 percent \u2013 the\n so-called \u201cGoldilocks\u201d level, not too hot and not too cold. According to\n Calvasina, this supports solid corporate revenue and profit gains, as well\n as capital investment and innovation. But when GDP growth slips to the\n 1.0 percent to 2.0 percent range, the market often falters as sales,\n earnings, and capital investment are dampened.\n <\/p>\n \n We think the risk of sluggish, sub-two percent 2025 GDP growth, combined\n with elevated inflation, has risen.\n <\/p>\n \n \n AI stocks have stumbled:<\/strong> Concerns about artificial\n intelligence (AI) stocks, which represent a meaningful share of the\n S&P 500\u2019s market capitalization, have also constrained the\n broader index.\n <\/p>\n \n Six of the Magnificent 7 stocks stumbled after their quarterly earnings\n releases, some of them breaking below key technical levels. The earnings\n results and\/or management guidance for important segments didn\u2019t rise to\n the very high investor expectations that had been baked into share prices\n and valuations.\n <\/p>\n \n We expect America\u2019s AI leaders will continue to face scrutiny in coming\n quarters to \u201cshow investors the money\u201d so to speak \u2013 in other words, to\n start showing tangible prospects for the return on invested capital in\n their AI buildouts, especially given that their price-to-earnings\n valuations still look elevated.\n <\/p>\n \n \n Earnings growth forecasts seem vulnerable to downgrades:<\/strong\n > All of these factors put the 2025 consensus earnings growth\n forecast of $271 per share at risk, in our view. This estimate has\n declined from $273 per share since mid-January. If economists\u2019 2025\n consensus 2.28 percent GDP growth forecast deteriorates meaningfully,\n we think the consensus earnings forecast will retreat further.\n <\/p>\n \n \n We\u2019re not ready to throw in the towel on the two-year-plus bull market\n just yet. During the recent downdraft, investor sentiment became quite\n negative, and this is often a contrarian indicator. Also, breadth measures\n (which track the proportion of stocks moving up versus those moving down)\n have not deteriorated significantly within the S&P 500 but are\n weakening for smaller-capitalization stocks.\n <\/p>\n \n However, we think investors should brace for additional volatility due to\n economic and earnings growth risks and the Washington policy\n uncertainties, particularly since additional large tariffs could be\n forthcoming. This is not the time to Overweight equities in portfolios, in\n our view.\n <\/p>\n \n We would stay committed to equities up to but not beyond the long-term\n targeted asset allocation levels \u2013 in other words, hold up to a Market\n Weight position. We view this period of uncertainty as a good time to\n boost the quality of equity holdings, with an emphasis on dividend\n growers.\n <\/p>\n","protected":false},"excerpt":{"rendered":" A period of rapid-fire developments has understandably put investors on edge. We make sense of five catalysts tugging on stock markets and elucidate why we\u2019re not ready to throw in the towel on the two-year-plus bull market just yet.<\/p>\n","protected":false},"author":15,"featured_media":16843,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"rbcwm_post_date":"2025-03-06T10:14:58","editor_notices":[],"rbc_url_alias":"","rbcwm_featured_desktop_image_position":"","rbcwm_featured_mobile_image_position":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[80],"tags":[165,624],"rbcwm_content_owner":[506],"rbcwm_need":[],"rbcwm_segment":[],"rbcwm_solution":[],"rbcwm_topic":[81],"rbcwm_channel":[],"rbcwm_format":[],"class_list":["post-16842","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","tag-inflation","tag-tariffs","rbcwm_content_owner-pag","rbcwm_topic-global-insights"],"acf":{"rbcwm_subtitle":"A period of rapid-fire developments has understandably put investors on edge. We make sense of five catalysts tugging on stock markets and elucidate why we\u2019re not ready to throw in the towel on the two-year-plus bull market just yet.","rbcwm_post_author":[960],"rbcwm_custom_breadcrumb_text":"","rbcwm_custom_breadcrumb_link_url":"","rbcwm_disclaimers":{"add_disclosures":["Yes"],"perspective_disclaimer":"","expandable":"","omit_from_pages":[],"disclaimer_footnote":""},"rbcwm_insight_cta_id":[8231],"rbcwm_pagination":{"next_link":"","next_link_text":"Next article","previous_link":"","previous_link_text":"Previous article"},"rbcwm_video_duration":"","article_time":"","rbcwm_enable_toc":false,"rbcwm_toc_selector":"h2"},"yoast_head":"\nFocus on quality<\/h2>\n