ZXLV - BMO SPDR Health Care Select Sector Index ETF

As we update our quarterly portfolio strategy, we’re reminded of an important lesson that often must be re-learned. Namely, that markets are terrible at forecasting non-linear events.

To wit, we are preparing this edition just ahead of the ​“America First Trade Policy” memorandum is scheduled to be released. That release is expected to recommend additional country-specific tariffs to be implemented based on the principle of reciprocity and other non-tariff barriers. 

Additionally, tariff exemptions on USMCA-compliant imports from Canada and Mexico are set to expire on April 2^nd while the threat of sector-specific damage on autos, semiconductors and pharmaceuticals still looms large.

As each day passes, we grow ever more concerned that tariffs are becoming a more mainstream concept at all government levels in the United States.

Indeed, there is a compelling reason for Republicans in both chambers of Congress to consider tariffs to solve an important problem. Namely, that the ability to extend tax cuts while trimming the bloated budget deficit looks increasingly untenable without tariff-related revenues.

In this note, we’ll quickly rehash the current state of affairs when it comes to the budget resolution process that is underway in both the House of Representatives and the Senate. Then we’ll go over why it may become difficult to extricate tariffs from tax cuts over the coming months – even if there are additional tariff delays from the White House. Finally, we offer three takeaways for our readers as well as ideas to take advantage of an environment where tariffs become a more permanent fixture.

Heading into this year, a sizeable contingent of investors anticipated a broadening out of momentum away from the ​‘Magnificent 7’ stocks (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla). From a sectoral perspective, that meant rotating away from Communications, Technology and Discretionary, and into sectors that offered potential value.