Global markets reflected widespread uncertainty at the start of April as investors tried to assess the impact of the U.S. tariff policy. A little over a month later and many of those tariffs are on pause, including the ones for China. Equity markets have welcomed the pause, erasing most, if not all, the losses suffered in April.  

To help investors make sense of the rapidly shifting economic landscape, two market experts at BMO Capital Markets offered an outlook at the recent BMO North American Real Estate Conference in New York.  

Below are some key takeaways from Brian Belski, Chief Investment Strategist, Global Markets, and Ian Lyngen, Head of U.S. Rates Strategy.  

The considerable market volatility in recent weeks hasn’t altered Brian Belski’s view that the 25-year secular bull market is still very much alive. Despite growing worries about a recession and higher inflation, he encouraged the audience to resist letting their emotions and personal views get in the way of their investment decisions.   

Markets, said Belski, are currently in a period of normalization that should soon see high single-digit to low double-digit performance on the S&P 500. “At the end of the day, I think we’ve been shocked into this normalization,” he explained. “Over the next three to five years, you can expect the U.S. to be a more consistent market, with Canada coming along for the ride.”  

BMO’s models suggest Canada is poised to outperform, with Belski noting that Canada outpaced the other major indices during the most recent volatility. The only reason the country’s equity market hasn’t participated in the recent surge in global stocks is because of the lack of diversification in the S&P/TSX Index, he explained.   

Against that backdrop, Belski described the Canadian market as an ideal one for stock pickers. “We embrace this notion of being a stock picker,” he said. “We embrace this notion of turning off the noise and looking at real data.”   

With bond yields stuck in the range of 3.5% to 4.5%, Belski pointed to real estate investment trusts (REITs) as an attractive opportunity on both sides of the border. In a normalizing economy, they can help balance portfolios by providing yield, inflation resilience and structural growth, he said.   

There are also opportunities in small-cap stocks, he added, as they’ve quietly become one of the cheaper corners of the market. If you remove the 60 biggest names from the TSX, you’re basically left with a small- to mid-cap index. While Belski sees plenty of upside in Canada, he sees even more south of the border, where there is a declining amount of publicly traded companies valued below the US$5-billion mark. “I believe that 10 years from now, we’re going to be kicking ourselves for not buying more small-cap in Canada, but particularly in the U.S.”  

Addressing the idea that U.S. markets may no longer be as safe of a haven as they once were, Ian Lyngen said he remains bullish on the market and expects to see bond yields go lower before the end of the year. He agreed with Belski that the market may have been quick to price in a recession and the potential downsides associated with the U.S. tariff policy.   

Lyngen wouldn’t rule out the possibility that the U.S. could see two quarters of GDP contraction in 2025, although he would not characterize it as a recession. The Federal Reserve, which to this point has adopted a wait-and-see approach, could resume cuts in the autumn, he said.   

For the moment, Lyngen has penciled in a 25-basis-point rate cut by the Fed in September and another one in December. “We’re going to move to an environment with lower breakevens and a market that has a reasonable amount of confidence in the Fed’s ability to keep inflation relatively well anchored, while avoiding a more severe economic outcome,” he explained.  

In light of the pause in tariffs between the U.S. and China, Lyngen said they have adjusted the estimate for core Personal Consumption Expenditures (PCE), a widely followed gauge of U.S. inflation, down to 2.8% from 4%. When you consider the impact of a potential U.S.-China trade deal and U.S. President Donald Trump’s recent executive order to lower pharmaceutical prices, the two moves could combine to shave half a percent off headline inflation, he noted. “The weighted average effective tariff will lead to winners and losers, but it isn’t going to truly change the composition of the U.S. economy,” Lyngen said. “It’s still going to be a consumer-driven economy.”  

The wider economic uncertainty in recent weeks has prompted a lot of people to stand back and let the dust settle. The problem with that, Lyngen explained, is that we may not gain that clarity until the middle of the summer. “One of the key things we’ve learned is the administration’s willingness to roll back some of the more extreme tariff announcements,” he said. “I suspect that there’ll be a point at which the market moves on from trading the trade war, long before all the bilateral agreements are in place.”