Gold and A.I. and rate cuts, oh my!

October 2025 Insights & Strategies

Macro Highlights for September

• U.S. 2Q25 GDP was revised up again to +3.8% (from +3.3%) annualized growth over 1Q25, a sharp rebound from the -0.6% (revised from -0.5%) contraction in 1Q25. Net exports’ contribution to GDP growth swung from a -4.6% drag in Q1 (as companies stocked up on inventory to front-run tariffs) to a +4.8% boost in Q2. Consumer spending continues to support growth, at +2.5% (revised up from +1.6%) in Q2, after a +0.6% (revised from +0.5%) gain in Q1.
• Canadian GDP was +0.2% m/m in July (up from the preliminary estimate of +0.1%), improved from -1.6% in 2Q25 (annualized). Goods production was +0.6% m/m while services production was +0.1% m/m. The advance estimate for August suggests no change, with weakness in manufacturing, likely mostly in trade-sensitive areas.
• Canadian GDP was +0.2% m/m in July (up from the preliminary estimate of +0.1%), improved from -1.6% in 2Q25 (annualized). Goods production was +0.6% m/m while services production was +0.1% m/m. The advance estimate for August suggests no change, with weakness in manufacturing, likely mostly in trade-sensitive areas. U.S. Fed Chair, Jerome Powell, warned that there are “no risk-free paths now”, after the FOMC lowered its policy rate by 25 bps on September 17. The message is that holding interest rates at current levels risks driving the unemployment rate higher, while lowering rates risks allowing inflation to rise higher.

Financial Markets in September

• In September, the TSX gained 5.1% in price and 5.4% in total return, pushing its year-to-date performance to 21.4% and 23.9%, respectively. The S&P 500 also had a solid month, rising 3.5% in price and 3.6% in total return, bringing its year-to-date gains to 13.7% and 14.8% in local currency.
• The TSX Composite continued to outpace the S&P 500 in September, as rhetoric on trade seems to have cooled, as impacts to economic growth and the labour market have been significant, but not as bad as feared. Further increases in the month in the price of gold (+11.5% to US$3,825/oz) have also led to significant strength in the Materials sectors, which has been a major driver of Canada’s outperformance. We maintain our year-end target of 29,900 for the TSX Composite index as we await 3Q25 earnings results and commentary.
• U.S. equity market indices continued to climb in September, with price returns led by the NASDAQ 100 (+5.4%), followed by the S&P 500 (+3.5%). Improved market breadth also supported the Russell 2000, the small-cap benchmark, which rose 3.0% and surpassed its previous 2021 high, as a new rate easing cycle breathed new life into this previously overlooked segment. Further broadening out of market leadership could be difficult as intensifying tariff pressures place more headwinds on smaller companies with less capacity to absorb supply chain disruptions and margin pressures.

Upcoming

• Canada’s unemployment rate will be updated on October 10. The consensus expectation is that it will remain steady at 7.1%.
• In mid-October we will start to see 3Q25 earnings being reported, which should provide additional clarity and commentary on how tariffs have been impacting businesses since the latest broad implementation in August. The most recent earnings revisions have been positive, as impacts so far have been less than feared and companies are touting productivity gains from A.I.
• With September rate cuts behind us, financial markets will be looking for signals about the potential for cuts at the next BoC and FOMC announcements on October 29 (and then on December 10). Weakening labour markets favour one more cut in Canada and two more cuts in the U.S., by year-end.