Ask Forstrong: The tariff headlines just keep coming. Amidst the noise, what should investors focus on?

Key Takeaways

• Investors risk losing focus in today’s tariff turbulence.

• Investors are warming to the idea that fiscal stimulus measures in major non-US economies—unleashed in response to Trump’s policies—will outweigh the negative effects of the trade war. 

• Instead of fixating on risks in these regions, investors are now eyeing return potential. Bull markets outside the US have quietly begun.

Can you feel it? The signs are everywhere. In this country, the list is long: selling second homes in Scottsdale, swapping out Kentucky bourbon for Canadian rye or, the ultimate sacrifice for some, cancelling a trip to the Coachella music festival in April. The theme, of course, is hard to miss: as America turns inward, a wave of patriotic pride is sweeping the rest of the world. 

But forget brawling hockey players, banter about a 51st state or renaming bodies of water—the real vibe shift, as discussed in Forstrong’s latest podcast with our ever-sonorous host Robert Duncan, is unfolding in financial markets. Trump’s second term was widely expected to supercharge US equities and the dollar while pummelling the currencies and stocks of its trading partners. Yet, just seven weeks in, the opposite has happened. Suddenly, investors woke up worrying that the much-hyped trade tariffs will stifle US growth. Warnings signs are flashing in both hard data (US personal consumption posted its steepest drop in four years last month, while manufacturers report sharp declines in new orders) and soft data (consumer confidence has fallen for three straight months, while inflation expectations have surged). Everywhere you look, “America First” bets are backfiring.

The Dark Side Of Deficits

Yet, as Trump’s economic agenda comes into sharper focus, a key priority is emerging: deficit reduction. And make no mistake—this is more than rhetoric. Treasury Secretary Scott Bessent’s strategy aims to shrink the budget deficit from nearly 7% to 3% through spending cuts, particularly in government employment and welfare programs. Supply-side measures like deregulation and corporate tax cuts round out the playbook.

But here’s the rub: for markets, deficits matter. Government spending has a habit of finding its way into corporate profits. While high deficits can be problematic in the long run, they tend to boost economic growth and fuel investor optimism while the spending is in play. Over the past decade, a key driver of US economic outperformance has been fiscal stimulus. If Washington meaningfully reins in its budget, US corporate profit margins are likely to take a hit.

Fiscal Bazookas Abroad

Meanwhile, US foreign policy is forcing a dramatic shift abroad. European politicians are responding with fiscal firepower, including bold commitments to defense spending that have already lifted regional asset prices. In a defining moment for Germany—and by extension, the European Union—coalition leaders have agreed to break free from constitutional budget constraints, clearing the way for a colossal €500 billion infrastructure and defense spending plan. These measures amount to 11.4% of Germany’s GDP—enough to stave off recession risks and rebalance the economy away from its reliance on exports.

The significance of this shift cannot be overstated. The Eurozone’s stagnation in the 2010s was shaped by two forces: (i) a massive deleveraging cycle in Southern Europe after the credit-fueled boom of the 2000s, and (ii) self-imposed fiscal austerity in Northern Europe. Now, both trends have run their course, setting the stage for a reflationary boom in the second half of the 2020s.

Elsewhere, China’s fiscal policy is turning stimulative. Beijing just raised its budget deficit to the highest level in over three decades, unleashing 5.66 trillion yuan ($780 billion) in fiscal stimulus—roughly 4% of GDP. Importantly, this year’s economic roadmap puts consumer spending at the top of the agenda for the first time since 2012. The message is clear: domestic demand is now China’s focal point.

While the magnitude of fiscal expansion in Germany and China remains uncertain, the direction of travel is now unmistakable: away from balanced-budget orthodoxy. Global investors are taking notice, and capital is rotating accordingly. Non-US equities are markedly outperforming their American counterparts in 2025.

Investment Implications

As discussed in last month’s Ask Forstrong, markets are in the midst a profound regime shift. Two fundamental emotions—fear and greed—are shaping the transition.

On the fear side, investors are finally questioning the wisdom of concentrating so heavily in richly-valued US tech stocks. The post-global financial crisis surge has made US equities nearly two-thirds of the world’s investable stock market—an extreme weighting that introduces substantial risk.

On the greed side, a new narrative is taking hold. Investors are warming to the idea that stimulus measures in non-US economies—unleashed in response to Trump’s trade stance—could outweigh the negative effects of protectionism. Sentiment is shifting. Instead of fixating on risks in these regions, investors are seeing return potential. Animal spirits are stirring, and many international markets have quietly entered bull territory.

Meanwhile, US equity underperformance is already eroding dollar strength—not just because global investors are reallocating, but also due to fundamental economic effects. A weakening stock market hits US household wealth. If this prompts Americans to cut spending, especially as fiscal policy tightens, US growth will slow. That, in turn, will force the Federal Reserve into easier monetary settings relative to other economies. The result? A structurally weaker US dollar.

The investment landscape is shifting—and fast. Forstrong’s globally diversified portfolios are positioned for what comes next: a world where protectionism reshapes capital flows and international markets emerge as the primary drivers of global returns.

Disclaimers:

The information contained in these materials is for general informational purposes only and is intended to provide only brief comments on broad market, industry or sector trends, or other general economic or market conditions. It is not intended to provide an overview of the terms applicable to any products or funds managed or sponsored by Forstrong Global Asset Management Inc. (“Forstrong”). Views expressed regarding a particular company, security, industry, investment, or market sector are the views only of that individual as of the time expressed and do not necessarily represent the views of Forstrong or any other person in the Forstrong organization. These materials contain information and views as of the date indicated and such information and views are subject to change at any time without notice, based upon market and other conditions, and Forstrong disclaims any and all responsibility to update such information and views. These views are not and may not be relied upon as investment advice and, because investment decisions for a Forstrong fund or product are based on numerous factors, are not and should not be relied upon as an indication of trading intent on behalf of any Forstrong fund or product. Any opinion or assumption may contain elements of subjective judgment and are not intended to imply, nor should be interpreted as conveying, any form of guarantee or assurance by Forstrong of any future action or performance. Neither Forstrong nor any of its affiliates, businesses, or representatives make any representation or warranty, express or implied, as to the accuracy, reliability, completeness, appropriateness, or sufficiency for any purpose of any information contained herein. Forstrong and its affiliates and related entities disclaim any and all liability relating to the information herein, including, without limitation, any express or implied representations or warranties for, statements contained in, and omissions from, the information. Forstrong and its affiliates and related entities are not liable for any errors or omissions in any information herein or for any loss or damage suffered, whether direct or consequential, resulting from the use of these materials.

The information contained in these materials is strictly for general illustrative, educational, or informational purposes, and is not intended to provide legal, investment, accounting, or tax advice, and should not be relied upon in that regard. These materials contain information and views as of the date indicated and such information and views are subject to change at any time without notice, based upon market and other conditions, and Forstrong disclaims any and all responsibility to update such information and views. These views are not and may not be relied upon as investment advice. Any opinion or assumption may contain elements of subjective judgment and are not intended to imply, nor should be interpreted as conveying, any form of guarantee or assurance by Forstrong of any future action or performance. Neither Forstrong nor any of its affiliates, businesses, or representatives make any representation or warranty, express or implied, as to the accuracy, reliability, completeness, appropriateness, or sufficiency for any purpose of any information contained herein. Forstrong and its affiliates and related entities disclaim any and all liability relating to the information herein, including, without limitation, any express or implied representations or warranties for, statements contained in, and omissions from, the information. Forstrong and its affiliates and related entities are not liable for any errors or omissions in any information herein or for any loss or damage suffered, whether direct or consequential, resulting from the use of these materials.

Any specific companies, issuers, funds, ETFs, or indices mentioned are for illustrative or educational purposes only and are not and shall not be deemed to be a recommendation to buy or sell any securities. Any companies, issuers, funds, or ETFs mentioned do not necessarily represent current or future holdings of any Forstrong funds or products. Any strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

Commissions, fees, and expenses may be associated with investments in Forstrong funds, ETFs, and/or other investment products. Please read a fund’s offering memorandum or ETF’s prospectus, as applicable, which contains detailed information, and speak to an advisor before investing. Funds and ETFs are not guaranteed, their values change frequently, and investors may experience a gain or loss. Past performance may not be repeated.

Certain statements in these materials may contain forward-looking statements or forward-looking information that are predictive in nature and may include words such as “expects”, “anticipates”, “intends”, “plans”, believes”, “estimates”, and similar forward-looking expressions or negative versions thereof. Such forward-looking statements are based on current expectations and projections about future general economic, political, and other relevant market factors, such as interest, and assuming no changes to applicable tax or other laws or regulations. Expectations and projections about future events are inherently subject to, among other things, risks and uncertainties, some of which may be unforeseeable and, accordingly, may prove to be incorrect at a future date. Forward-looking statements are not guarantees of future performance, and actual events could differ materially from those expressed or implied in any forward-looking statements. A number of important factors can contribute to these differences, including, but not limited to, general economic, political, and market factors in Canada and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, and catastrophic events. You should avoid placing any undue reliance on forward-looking statements. Past performance is no indicator of future performance and the materials are not intended to forecast or predict future events. Forstrong disclaims any and all responsibility to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as specifically required by law.

The information contained herein is presented solely for illustrative purposes and should not be construed as a forecast or projection. While some information used herein has been obtained from various published and unpublished third-party sources considered to be reliable, such information has not been independently verified by Forstrong (and Forstrong disclaims any obligation to verify) and Forstrong does not guarantee its accuracy or completeness and accepts no liability for any loss or damage suffered, whether direct or consequential, resulting from its use. It should be noted that data provided may be approximate numbers.

Forstrong Global® and the Forstrong Global® logo are trademarks or registered trademarks of Forstrong Global Asset Management Inc. in Canada.

© 2025 Forstrong Global Asset Management Inc. All rights reserved.