Investment Commentary Fall 2025
Macro Highlights
On September 17, both the Bank of Canada (BoC) and the Federal Open Markets Committee (FOMC or Fed), lowered their policy rates by 25 basis points (bps). In Canada, this was in response to a weakening economy that has been battered by U.S. tariffs and general economic and trade uncertainty, against the backdrop of relatively controlled inflation and a deteriorating labour market. In the U.S., economic growth has been still relatively strong and the unemployment rate is historically low, although signs are pointing to the economy weakening somewhat and employment growth slowing. Despite inflation remaining stubbornly above target, the FOMC is more willing to look past the slightly elevated inflation, with the expectation that some of it will be tariff-driven and transient, in order to preemptively avoid any rapid deterioration in employment with this “risk management” rate cut.
The tariff story is far from over, yet fears of tariffs that would decimate the Canadian economy and drive up U.S. inflation are fading somewhat. Canadian exports to the U.S. have been relatively shielded by the USMCA agreement, despite certain industries, such as automotive, steel, and aluminum being put under significant strain. The U.S. has also given numerous exemptions after chaotically announcing broad tariffs in April, such that the actual tariffs collected have been much lower than would be expected from headline announcements and effective tariff rate calculations. As businesses initially stockpiled inventories to avoid tariffs, they have now started to adapt to a more stable tariff regime. While the extra revenue that the U.S. government is collecting is primarily coming from U.S. companies and U.S. consumers, impacts so far have not been as devastating as feared, and while we can still expect some inflation impacts to come, policymakers are generally willing to accept that they will be transient and manageable when determining monetary policy.
Financial Markets
Both the TSX Composite and the S&P have hit a new all-time highs. The TSX, at time of writing, has returned year 22% year-to-date and the S&P 500 has returned approx. 15% year to date. Gold has hit new records and the main performance contributors to the indexes are materials, information technology and financials.
Economic and market indicators suggest that the secular bull market is still in play, but the geographic distribution has been changing with the threat of U.S. tariffs still on the table. As a result of these tariff threats, we have been witnessing a dramatic shift in the global financial market with earnings estimates trending higher on markets outside of North America, valuations running lower and the payout to shareholders consisting of higher dividends compared to the U.S. that still favors share buybacks in lieu of higher dividends.
As new trade deals are formed between countries that have been disproportionately reliant on the United States, businesses are investing more and more in their own domestic economies in sectors that stand to benefit from this shift that is going on. This includes Canada of course where we have been hearing talk about major investments about to be made in infrastructure, energy and housing.
What’s Next
The markets have experienced significant performance over the last two years. Considering the possible effects of the tariffs and the impact of the US government shut down both which are unknown and using the fundamentals involved in charting secular trends as a way of forecasting future movements in the financial markets, we believe, the market has moved up far too high and far too quickly. The market closed on October 6th, at 30,531.88 breaking through the 10 year trend line on July 31st of 27,259.78. This move has added 12% to the YTD return of 23.47%.
We will soon be kicking off 3Q25 earnings season and while the results are important the market will generally move on what the economic expectation is for the next 12 months. We wouldn’t be at all surprised if the market stalls at this point or we see a pullback of some sort while we wait for more clarity on the economic drivers that are being heavily influenced by the politics of global trade.
How we are positioned.
The U.S. is still the world’s largest economy measure by nominal GDP and will probably remain so for a long time to come but other markets are becoming more attractive for investors. As a result of this, we have added a new position in the foreign sleeve of our model portfolio to take advantage of this changing trend by replacing one of our buy and hold funds. We have also slightly trimmed our gold position in favour of broad exposure to dividend stocks which we expect to benefit from infrastructure investment. We continue to hold a slight overweight position in fixed income which we can move to the equity market should that opportunity present itself (market pullback).
We continue to follow and implement our core investment philosophy of maintaining a prudent asset mix of stocks and bonds and investing in only profitable businesses with clean balance sheets that pay dividends and spin-off enough fee cash flow to ensure future growth through expansion or acquisitions.
We hope you all enjoyed the fall that was an extension of the summer and a wonderful Thanksgiving with family and friends. As always please do not hesitate to contact any one of us with any questions or concerns.
Regards,
Linda Shick
Senior Portfolio Manager & Senior Wealth Advisor
T: 416-777-7109
linda.shick@raymondjames.ca
David J. Angas, CEA
Senior Financial Advisor, Certified Executor Advisor
T: 416-777-7110
david.angas@raymondjames.ca
Helping families manage the complexities of life’s transitions.
Information in this article is from sources believed to be reliable; however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Family Wealth Counsel Advisory Group, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member Canadian Investor Protection Fund.
