Executive summary:
- Canadian equity markets took the resignation of Prime Minister Justin Trudeau in stride
- Global economic growth, led by the U.S., is continuing
- The selloff in UK government bonds deepened during the first week of January
On the inaugural edition of Market Week in Review for 2025, Senior Director and Chief Investment Strategist for North America, Paul Eitelman, discussed Canadian Prime Minister Justin Trudeau’s resignation as well as the latest batch of U.S. and global economic data. He also examined the recent volatility in global fixed income markets and its impact on other asset classes.
Trudeau announces resignation. How did Canadian equity markets react?
Eitelman began with a look at the latest political developments in Canada, where Prime Minister Justin Trudeau announced on Jan. 6 that he will resign once a new Liberal Party leader is chosen. Trudeau made the announcement ahead of Canada’s national elections, which must occur by October, he remarked.
Canadian equity markets have been largely unfazed by Trudeau’s announcement so far, Eitelman said, stressing that uncertainty doesn’t always translate to adverse market outcomes. For example, in 1993, Canada’s S&P/TSX Composite Index climbed roughly 15% during the four-month period between Prime Minister Brian Mulroney’s resignation announcement and the beginning of Kim Campbell’s tenure as prime minister, he noted.
“This precedent serves as an important reminder of the value of sticking to your strategic asset allocation during times of uncertainty,” Eitelman said, pointing viewers to a recent LinkedIn post from his colleague, Investment Strategist BeiChen Lin, for additional information.
U.S. services sector powers global economic growth
Next, Eitelman turned to the latest U.S. economic data, which he said suggests that the country’s labor market is holding up. He explained that while it’s becoming harder for some unemployed individuals to find jobs, layoffs have not been increasing. “This is an encouraging sign for the resilience of the U.S. consumer and the economy more broadly,” he noted.
Shifting his gaze more globally, Eitelman said that the global PMI (purchasing managers’ index) readings for the month of December paint a fairly encouraging picture for the health of the economy. “Broadly speaking, these numbers point to a global economy that is continuing to chug along—with a few important differentiations under the surface,” he remarked. Specifically, global growth is being powered by the services sector and led by the U.S., Eitelman explained, noting this has been the case for the better part of the past few years.
Volatility strikes global bond markets
Eitelman wrapped up the episode by unpacking the recent volatility in fixed income markets around the globe. A notable selloff in government bonds has occurred over the past weeks, he said, noting that the yield on the U.S.10-year Treasury note settled near 4.7% on Jan. 8—a full percentage-point higher than where it stood in mid-September.
Meanwhile, in the UK, the yield on the 10-year gilt rose to around 4.8% the same day—higher than it reached during the gilt market crisis of 2022, Eitelman noted. However, he stressed that UK pension schemes are much more resilient to rising yields today than a few years ago, noting that most are well-positioned to weather the changes.
Eitelman said that the global rise in yields is beginning to impact other asset classes as well, noting that the S&P 500® Index is down roughly 3% from its December 2024 peak. More rate-sensitive areas of the market have been hit harder, he noted. Case-in-point: the Russell 2000® Index is off roughly 8% from its post-U.S. election high, unwinding much of the optimism seen in small caps following President-elect Donald Trump’s victory in November and the red wave outcome.
So, how does the selloff in fixed income markets impact Russell Investments’ views? Eitelman said that the strategist team is starting to see incremental value in the bond market again. He noted that the U.S. Treasury yield curve has also steepened markedly, with the yield on the 10-year note rising faster than the yield on the 2-year note.
“This was an area where we’d seen some potential opportunities, but with the significant moves over the last several weeks, the spread between the two is now approaching a level that we think is closer to our estimate of fair value,” Eitelman stated, emphasizing that the slope of the curve will be an important watchpoint in the weeks ahead.
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