U.S. and Canadian stocks have pushed to record highs, reinforcing investor confidence even as questions linger around trade policy, fiscal deficits and longer-term economic resilience. Markets are drawing support from strong equity performance, but underlying risks could still drive volatility ahead.
BNN Bloomberg spoke with Karl Schamotta, chief market strategist at Corpay, about the feedback loop between equities and economic growth, the potential impact of a U.S. Supreme Court ruling on tariffs, and the contrasting outlooks for the U.S. and Canadian economies.
Key Takeaways
- Rising equity markets are reinforcing consumer confidence and spending, creating a feedback loop that is helping support near-term economic growth.
- A pending U.S. Supreme Court decision on tariffs could spark renewed volatility as businesses adjust behaviour around refunds and front-running.
- Strong U.S. data may delay rate cuts and support the dollar in early 2026, even as longer-term economic vulnerabilities persist.
- Large fiscal deficits and growth concentrated in technology and artificial intelligence are leaving the U.S. economy more fragile over time.
- Canada’s economy faces headwinds from weak investment, slower housing activity and past uncertainty, though outcomes have been less severe than feared.
Read the full transcript below:
ANDREW: U.S. and Canadian stocks ended at record highs yesterday, but let’s get more on that and several other topics. We’re joined by Karl Schamotta, chief market strategist at Corpay. Karl, thanks very much. Great to talk to you, as ever. The equity market, of course, is not famous for being a very accurate economic predictor, but stock market buyers are certainly feeling pretty good right now.
KARL: That’s right. And the interesting part now is that equity markets are, to some extent, helping to drive the economy. We know stock holdings among the wealthiest households, and even upper middle-class households, have been rising dramatically over the past couple of years. That’s powering an improvement in sentiment and convincing a lot of households to spend, which is driving the economy. You’re seeing a feedback loop developing between equity markets rising and the economy outperforming. At this point, it does not look as if investors are turning bearish on the underlying economy, on corporate earnings or on the global risk backdrop we’ve seen punctuated so many times in recent weeks.
ANDREW: We’re fairly shortly going to get a decision on President Donald Trump’s trade tariffs from the U.S. Supreme Court. Is that likely to be a market-moving decision?
KARL: It’s funny — it shouldn’t be, because markets are anticipating the administration essentially immediately replacing all of the IEEPA tariffs with other tariffs under other laws. But the reality is that this could be quite nuanced. Many of the other laws on the books that would allow the president to implement tariffs have significant restrictions on the time and duration they can be in place, where they can be used and at what level. There’s going to be uncertainty around how those tariffs can be implemented and how they might be ruled on over time.
At the same time, business behaviour could be a trigger for a lot of movement. We know businesses would immediately start applying for refunds if this set of tariffs is struck down, and if there’s any gap between now and the next round of tariffs, they’re likely to begin front-running again. Over the past year and a half, we’ve seen repeated bouts of volatility as companies rushed goods across borders ahead of tariffs, then ran down inventories and did it again. That behaviour has fed directly into markets. What we could see here is a period of turbulence, even if the underlying ruling is favourable for global trade.
ANDREW: You’ve said there are serious long-term weaknesses apparent in the U.S. economy, even though things look strong right now, fuelled by large deficits.
KARL: That’s right. My view on the U.S. economy is that we’re going through a hawkish repricing of growth and monetary policy expectations. I do think we’re going to see better-than-expected data in the first quarter and maybe through the first half of 2026. That could prop up U.S. yields, push expectations for rate cuts further into the future and lift the dollar.
The other side of that is the longer run. Labour markets are rolling over and we’re seeing softness in job creation over time. Much of the economy is being driven by government spending. Although President Trump came to power promising to reduce deficits, they remain extremely large, on par with wartime levels. On the corporate side, the technology sector and artificial intelligence-related plays have been driving a huge share of growth. To me, that points to an overconcentrated, fragile and vulnerable U.S. economy. Once we get past that repricing in the first half of 2026, we should see drag build and U.S. outperformance narrow relative to other countries, including Canada.
ANDREW: We’re going to be talking to Deloitte economist Dawn Desjardins later on the show. She expects lower economic growth in Canada this year compared with 2025, although there are some hopeful signs emerging. What’s your broad view on the Canadian economy?
KARL: I think that makes sense. The uncertainty that hit last year is going to have lagging effects. Weak business investment and weak household consumption will roll over into other economic variables. The housing market is also playing a big role. Prices aren’t rising the way they once were, and credit growth has slowed sharply. That creates a significant headwind for the Canadian economy.
That said, it’s important to keep this in context. Around this time last year, most market participants and economists expected much more severe outcomes for the Canadian economy than we’ve actually seen. To some extent, we’ve dodged a bullet, and we’ve also had a reality check about our place in the world and the vulnerabilities we face in international markets.
ANDREW: Karl, we’ll leave it there. Thanks very much, as always. We hope to have you back in 2026.
KARL: I look forward to talking with you again, Andy.
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This BNN Bloomberg summary and transcript of the Jan. 7, 2026 interview with Karl Schamotta are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
