This Week in Review | Canada’s Election, US Debt Ceiling, Recession Indicators (Mar. 28, 2025)

Transcript

Paige Tyson:

Hello, and welcome to This Week in Review. This weekly segment is designed to highlight a few important developments you may have missed this week, what they mean for markets, and most importantly, the potential impact for investors. Now, let's review what happened this week.

First, Canada's election announcement.

 On Sunday, Canadian Prime Minister Mark Carney called for a snap election on April 28th. Carney, who previously led the Bank of Canada and the Bank of England, became Canada's prime minister in March after succeeding Justin Trudeau as leader of the Liberal Party. In April, he'll face off against Conservative Party leader Pierre Poilievre.

The conservatives held a wide lead in polling prior to Trudeau's resignation in January, but the race has tightened in recent weeks, largely driven by Canadian backlash against US tariffs and rhetoric. And while Canadian political uncertainty is elevated today, it will likely fall as the election draws closer.

When the campaign heats up, we caution investors against getting caught up in the partisan noise and dramatic headlines. We believe it's dangerous for investors to make portfolio decisions based on campaign rhetoric or policy promises. In our view, it's better to see what politicians actually do, as it's often common they govern differently from how they campaign.

Next, an update on the US debt ceiling.

US debt ceiling concerns were back in the spotlight this week. On Monday, the Bipartisan Policy Center estimated the US government could run out of funding as early as mid-July if Congress doesn't raise or suspend the debt limit. But then on Wednesday, the Congressional Budget Office released their own official estimate, suggesting the true date could be sometime in August or September. And while these estimates generate dramatic headlines, they aren't precise. Much of this has to do with the timing of government revenues and expenditures in the coming months. But in our view, investors shouldn't fret too much either way.

Debate over the debt ceiling often worries investors over fear that the federal government might default on its obligations. However, an actual default is unlikely. Though politicians often like to play fast and loose with the term, a default would only happen when the government fails to make bond, principal and interest payments on outstanding debt. Potential delays in payments to suppliers or adjustments to entitlement programs don't constitute a credit event, even though they do have an undeniable human impact.

Overall, the federal government appears able to easily service its debt. Even with monthly revenues fluctuating, as they often do, they still surpass interest expenses each month. Given the Treasury has the ability to prioritize interest payments over other federal expenditures, we believe the risk of actual default is extremely low.

Finally, recession indicators.

As worries about a potential recession have risen this year, many investors are searching for ways to gauge the economy. Some track job postings, others review restaurant spending, high-end jewelry sales or auto loan application rates, and looking at niche data points such as these may be interesting, but we doubt they offer much insight into the broader economy or stock market.

There are times when unconventional, real-time economic indicators can come in handy. Back in 2020, for instance, they helped investors measure the economic impact of Covid lockdowns. While traditional indicators like retail sales and industrial production took time to come out—those are monthly indicators—restaurant bookings, TSA checkpoint crossings and other similar metrics offered quick insight into how much commerce the US economy was losing. But here's the catch. These indicators tend to have a narrow focus and often lack critical context. While they can give a snapshot of what's happening in specific areas, they don't necessarily represent broader economic trends. Most of the time, they can't even help explain why a trend is even happening.

Additionally, economic news doesn't have to be positive for stocks to rise. Stocks move most on the difference between expectations and reality. To us, better than expected economic reality is enough to propel bull markets.

That's it for this week.

Thanks for tuning in to This Week in Review. If you're looking for more insights, then don't miss our other series, 3 Things You Need to Know This Week, released every Monday. You can also visit fisherinvestments.com anytime for our latest thoughts on markets.

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