Global Index Performance

 

 

Fixed Income*

In July, Canadian fixed income markets experienced a modest rise in yields. The 10-year Government of Canada bond yield moved between 3.50% and 3.56%, driven by ongoing concerns about government spending and lingering inflation uncertainty. Shorter-term rates also edged higher, with the yield on 3-year bonds climbing from around 2.7% to nearly 2.9%.

Looking ahead, bond investors are watching the Bank of Canada closely. Expectations are building for as much as 50 basis points of rate cuts in 2025, which could bring the overnight rate down to about 2.25%. On July 30, the BoC held its policy rate steady at 2.75%, taking a cautious, wait-and-see approach. The central bank highlighted that slower economic growth and steady inflation might justify future rate cuts. Amid rising concerns about a global slowdown and a more cautious tone from central banks, bond markets have begun to price in a shift toward easier monetary policy, helping to lower Canadian yields.

Meanwhile, across the border, the U.S. Federal Reserve (Fed) is showing signs of internal division. In July, two Fed officials voted against holding rates steady, instead calling for immediate cuts due to softer labor market data and easing inflation. The Fed’s cautious approach seems more connected to concerns about weakening employment than to the ongoing impact of tariffs, which remain an inflation risk. In the UK, the Bank of England cut its rate by 25 basis points to 4.0%, as expected, but warned that inflation pressures remain persistent.

Equities*

U.S. equity markets extended their bullish trend in July, with the S&P 500 hitting 15 record highs so far this year—10 of which occurred in July alone, driven by robust corporate earnings and a resilient macroeconomic backdrop. Favorable liquidity and a persistent market rally have prompted both systematic and active investors to continue buying, even as geopolitical and policy risks persisted.

However, the rally is facing growing headwinds, particularly from President Trump’s sweeping global tariff policy, which has significantly raised effective tariff rates since the beginning of the year. Uncertainty over which products or countries might be excluded from the tariffs has created confusion, making it more challenging for companies to plan their supply chains, investments, and hiring. While the tech and energy sectors continue to lead gains, equity redemptions from U.S. finance-focused funds in July suggest rising investor caution.

Canadian equities also advanced, with the S&P/TSX lifted by financials and energy, while global equity markets also posted solid performance. Emerging markets outshone developed peers, with Vietnam, Taiwan, and China leading gains. Despite these positive moves, we believe the market setup remains fragile.

Market Outlook

Looking ahead, investors are navigating a complex and uncertain environment shaped by macroeconomic inflection points, geopolitical realignment, and evolving central bank strategies. The market appears cautiously optimistic, supported by solid earnings momentum and global ETF inflows—particularly into international equities and fixed income strategies as investors seek broader geographic exposure.

Yet, key downside risks remain: escalating U.S. tariffs, the potential unraveling of the U.S.–China trade truce, signs of stagflation in developed economies, and the possibility of delayed rate cuts from a more hawkish Fed. Although nearly all Canadian oil exports remain tariff-free, smaller exporters continue to bear the brunt of local-content rules under the updated USMCA framework.

Investors are increasingly favoring flexibility—holding elevated cash positions and rotating into defensive sectors to preserve optionality in a volatile macro regime. The broader market tone for the second half of 2025 will likely hinge on how effectively policymakers manage inflation, rate expectations, and trade negotiations in an increasingly fragmented global order. Our portfolios remain diversified across regions and asset classes to help manage volatility while positioning ourselves to capitalize on growth opportunities as market conditions improve.

*Data sourced from FactSet as of August 7, 2025.

 

 

 

1. As measured by the FTSE Canada Bond Universe Index
2. As measured by the S&P/TSX Composite Total Return Index
3. As measured by the S&P 500 Total Return Index in CAD
4. As measured by the MSCI EAFE Total Return Index in CAD
5. As measured by the MSCI EM Total Return Index in CAD