Markets have proved resilient to Trump’s chaos. But investors should be ready for more
Specialist Meric Greenbaum works at his post on the floor of the New York Stock Exchange, as a television shows U.S. President Donald Trump speaking at the World Economic Forum, on Jan. 21.Richard Drew/The Associated Press
The best lesson ever on not panicking when stocks plunge can be found in a chart of the S&P/TSX composite index over the past 12 months.
In close to three decades writing about personal finance and investing, I have rarely – if ever – seen people as rattled as they were in spring 2025. While U.S. President Donald Trump mused about Canada becoming the 51st state, stocks tanked as the reality of U.S. tariffs set in.
But markets quickly rebounded on optimism based on factors such as AI hype, the resilience of corporate profits and strong prices for commodities including gold, silver, copper and aluminum. The Canadian stock market in particular offered spectacular returns.
Stock markets remain upbeat in 2026, yet the level of global disorder generated by Mr. Trump is arguably worse. Your baseline assumptions should be that bad news eruptions will be a constant in the coming years, and that financial markets will at some point provide the returns you’d expect in times like these.
U.S. dollar under fire again as investors reassess Trump policies, geopolitical risk
For now, you can’t keep the stock market down. Consider last week’s Greenland drama: Stocks fell hard on the threat of tariffs and military intervention by the U.S., then rallied when Mr. Trump backed off. The bias, for now, is to an optimism unseen almost anywhere else in daily life.
The bond market sees things differently. Bond prices have been falling in response to a range of issues that include the risk of tariff-related trade disruptions such as inflation; concerns about government debt in Japan; and the potential for a sustained “Sell America” trend of exiting U.S. assets such as government bonds and stocks.
Bonds are normally your go-to hedge against stock market declines. Hence the long-time standard default portfolio mix of 60 per cent stocks, 40 per cent bonds.
A big believer in bonds is the investing giant Vanguard, which last year took an unusual stance in suggesting a portfolio of 70 per cent bonds and 30 per cent stocks. The underlying thinking here is sound – stocks have soared and bonds are undervalued.
The benchmark FTSE Canada Universe Bond Index has posted an annualized loss – yes, loss – of 0.4 per cent over the past five years on a total return basis, which includes bond interest as well as price changes. A rebound is coming, but it could be delayed by recent concerns in the bond market.
Mr. Trump’s climbdown on Greenland suggests there is one thing that curbs his aggressive posturing – negative reaction in financial markets. Falling stocks are bad for his brand, and rising bond yields slam the U.S. Treasury by raising the cost of borrowing to support the country’s hefty deficit spending. Bond yields move in the opposite of bond prices.
For now, there is simply no point trying to guess whether stocks and bonds will soar or slump in the near term.
Selling stocks in anticipation of turmoil rarely works – you either miss out on future gains or fail to get back into the market before significant recovery has occurred. If you’re unlucky, you get both your exit and re-entry wrong. But passivity in the face of uncertainty isn’t ideal, either.
Taking profits on successful speculative investments seems prudent, be they individual stocks or sector-focused exchange-traded funds or mutual funds. Now is also a good time to compare your current level of portfolio diversification with your ideal mix, be it the default 60:40 blend of stocks and bonds, or variations that are more aggressive or cautious.
Tempted to let your stocks run at the expense of bonds? You might regret it. Stocks aren’t quite a soap bubble after an amazing five-year run, but they are vulnerable to sharp objects like current U.S. trade and foreign policy. When stocks do correct, expect declines of much worse severity than what bonds might deliver. Worst case, you win with bonds by losing less than stocks.
Bond risk can be addressed by weaving some cash into your non-stock holdings. Don’t let this money sit idle in your investing account – that’s a gift to your broker. Instead, consider products such as investment savings accounts, high interest savings ETFs or money market funds. Yields on these products are in the 1.85 to 2.35 per cent range, which is close to recent levels of inflation.
If there’s a Trump Trade in investing, it might simply be holding gold. Gold is no more a producer of perma-gains than AI stocks or Canadian real estate. But right now, it’s more than fulfilling its mission to provide a safe haven in troubled times.
The investing lesson of 2025 was that stock markets can panic and rally, all within a few months. The lesson of 2026 has yet to be written, but it could be that investing gets complicated sometimes. Be ready for it.
Rob Carrick is a personal finance expert and former Globe and Mail staff columnist.
