By: Bruce Murray, CFA

The markets have had an impressive year to date despite the panic associated with “Liberation Day” and the massive tariffs imposed on so many of the USA’s trading partners. While fear of economic collapse mounted, it has thus far not materialized. Delays in implementing the tariffs and corporate stockpiling have kept the economy moving along. As you are aware, here at The Murray Wealth Group, we wrote about the panic selling in the late spring a buying opportunity.

Tariffs have not as yet hit the service sectors of the economy, which continue healthy, and our positions in those sectors and the beneficiaries of the massive investment required to build the necessary infrastructure for the rollout of Artificial Intelligence (AI) have driven an impressive 15% return for our Global Equity Growth Fund in the first 8 months of the year. Excitement over potential AI winners continues to drive the market higher, and while occasional pullbacks can be expected, we will continue to hold core positions in the sector.

However, we are now seeing the effects of the tariffs starting to bite. The U.S. economy is no longer generating sufficient job growth, and inflation is running higher than Central Banks’ targets. We are also seeing capital spending outside of the AI infrastructure slowing as tariff uncertainty delays major projects.

This is leading to a conundrum for central banks, particularly the U.S Federal Reserve Bank (the Fed), as they weigh the risk of spiraling inflation with the need to re-accelerate their economies.  President Trump has been demanding lower interest rates, and more of the Fed Governors are now starting to favour cuts to stimulate employment. In Canada, we are seeing a very moribund economy, with the exception of the resource sector, with housing stalled and consumer spending restrained. The looming rollover of five-year mortgages in Canada may serve to further affect consumer spending.

I continue to believe that we will see interest rates cut by at least 1% in both Canada and the USA into the fall. Lower interest rates are good for long duration assets like stocks. At the end of August, the yield on our Income Growth Fund was 5.6%, which remain very competitive in a slow economy. Moreover, upwards of 40% of this portfolio is invested in companies that will benefit from the implementation of Carney’s mega project announcement that aims to get Canada’s economy moving again. A further ~5% will benefit from the utility infrastructure buildout required to support AI-driven demand for electricity.