We hope you’ve enjoyed a relatively pleasant, warm and dry September. As we’re now in the final few months of the year, we would like to provide a recap of notable happenings in Q3 (July – September) as well as a 2025-to-date update.

Economy

-In 2025, institutional investors have largely centered their attention on President Trump’s aggressive tariff agenda. Key themes include:

• Protectionism: Inspired by a 2024 policy paper, the administration aims to create a competitive edge through broad import tariffs.
• “Liberation Day”: Proposals to eliminate the U.S. goods trade deficit via steep tariffs have stirred debate.
• “TACO” Trade: Markets perceive Trump’s trade threats as inconsistent, often walked back after initial tough talk.
• Uncertainty: Despite some new trade frameworks, details remain unclear, especially with major partners like China, Canada, and Mexico. “Despite the noise, markets have begun to focus on the likelihood of elevated—but manageable—tariff levels. The challenge now is to avoid being anchored in the current narrative and remain open to shifts that may emerge as we move into 2026” – Paul Taylor, Portfolio Manager at Mackenzie Investments

-Over the summer, macroeconomic conditions remained relatively stable, with inflation holding near 2% in Canada and a bit higher, around 3%, in the United States. However, the winds appear to be shifting in the labour market, where there are more serious signs of a slowdown, as the pace of job creation slowed and the unemployment rate ticked up to its highest level since 2021. This evolving environment has prompted central banks to recalibrate their policy stance, with both the Bank of Canada and the Federal Reserve cutting rates in September and suggesting that further easing is now on the table – National Bank Investments

-Against this backdrop, (NBI’s) base case scenario of moderate economic growth and above-target inflation in the US remains largely unchanged. While challenges remain, global activity should be supported by improving financial conditions and a more favourable fiscal and monetary stance in the coming quarters. In terms of key risks, a further deterioration of the labour market cannot be ruled out, while an acceleration in inflation could quickly call into question market expectations of upcoming Fed rate cuts. Thus, after a remarkably calm summer, volatility could increase in the coming months as markets digest the constantly changing economic and geopolitical environment – National Bank Investments

-Last week in the U.S., Q2 GDP was revised up to 3.8%, well above earlier estimates, underscoring economic resilience and casting doubt on the Fed’s ability to ease aggressively. Inflation data were broadly in line with expectations, with headline PCE at +0.3% MoM and core PCE at +0.2%, suggesting inflation pressures are easing but not resolved. A heavy slate of Fed speakers offered mixed messages, reaffirming divisions on the policy outlook but keeping expectations for 1–2 more cuts this year intact.  In Canada, Governor Tiff Macklem reiterated a cautious, data-dependent stance following the BoC’s recent 25bp cut, stressing that future decisions hinge on incoming data. Markets interpreted his remarks as consistent with a wait-and-see approach ahead of the October meeting – CI Global Asset Management

Canadian Equities

-The TSX is up 22.7% YTD (as of September 26), outperforming the U.S. and international markets.

-Markets kept their momentum going during the third quarter, with Canadian equities (and emerging markets) leading the charge, the former being supported by the relative strength of cyclical sectors such as Financials (Big 5 banks), Energy and especially Materials (gold miners).

-On September 30, the TSX closed above 30,000 for the first time.

US Equities

-The S&P is up 13.7% YTD (as of September 26).

-U.S. equities also advanced in the 3rd quarter, though gains were more modest amid already very high valuations.

-In addition to the president’s reversal on tariffs, renewed market optimism stems from the continued resilience of the U.S. economy; the labour market is still on track, corporate earnings remain relatively strong – National Bank Investments

-U.S. Equities have done well not because of valuation expansion in of itself, but because of superior earnings growth and return on equity. You could argue valuations are high, but that is a product of performance. By contrast, we’ve seen Europe bounce back this year simply because of P/E expansion alone as investors anticipate fiscal stimulus and related rebound in earning growth. Yet we haven’t seen that. The U.S. is going to continue to outpace Europe from an earnings perspective for the short-term, at the least – Marchello Holditch, Head of Multi-Asset Solutions at BMO Global Asset Management

International Equities

-The MSCI Index is up 15% YTD (as of September 26).

-For the first time in many years, the picture is brightening for international stocks. There are new catalysts accelerating change: fiscal stimulus in Germany, corporate reforms in Japan and South Korea, a weakening U.S. dollar, signs of stabilization in China, and an improving policy environment in Europe. – Capital Group

-Over the last few years, cheaper valuations compared to similar U.S. businesses have been the main argument in favour of international equities. But new catalysts are changing the narrative for the first time in years. Moreover, in an environment where infrastructure spending rises, non-U.S. markets are more diverse and weighted higher in heavy industry, energy, materials and chemicals than the S&P 500. -Capital Group

-European banks have had a stellar run, significantly outpacing the Mag Seven group of U.S. technology leaders and the S&P 500 Index. The MSCI Europe Banks Index has returned 63.6% through August, on track for its best calendar year since 1997. By comparison, the Mag Seven returned 9.9%. – Capital Group

-Of course, non-U.S. stocks have long been inexpensive for a reason. Earnings growth has been anemic compared to the U.S. and its vibrant technology sector over the past decade. If earnings growth rebounds across international markets, price-to-earnings ratios could rerate higher – Capital Group

Fixed Income

North American fixed income markets enjoyed solid returns in August. The broad Canadian bond market rose 0.4% on the month, pushing its YTD gain to 1.1%. The aggregate US market rose 1.2% MoM and has advanced ~5% YTD. Over the past 12-months, the Canadian and US markets have delivered returns of ~3%, with the Canadian strongly outperforming in 2024 but the US market enjoying a much stronger 2025 thus far. Investors are continuing to benefit from historically attractive yield levels with the aggregate Canadian and US bond markets yielding ~3.4% and 4.3%, respectively – Derek Amaury, Dynamic Funds Core Fixed Income Team

Charts of Interest

 

 

 

 

 

 

As always, please reach out to us with questions or concerns about your portfolio. We are always happy to speak with you.

 

 

Sources: Bloomberg, BMO Global Asset Management, Capital Group, CI Investments, Dynamic Funds, National Bank Investments, RBC Global Asset Management