Resilience in the Face of Uncertainty
July proved to be a turning point, as equity markets held strong, showcasing resilience amid a backdrop of uncertainty. Both the Federal Reserve and the Bank of Canada are carefully navigating between moderating inflation and sluggish growth, which means we’re likely to see some market volatility ahead.
| Index | Jun-2025 | Jul-2025 |
| S&P 500 Total Return | 5.1% | 2.2% |
| S&P/TSX Total Return | 2.9% | 1.7% |
Global Market Overview
Global equity markets kept their upward momentum in July. Both the S&P 500 and Nasdaq hit new record highs, reflecting strong investor sentiment. The rally was driven by strong corporate earnings, especially in tech, and some positive signs coming from U.S. trade talks. Still, geopolitical tensions weighed on the investment outlook, particularly in terms of how tariffs might affect inflation. The Federal Reserve kept interest rates between 4.25% and 4.50%, despite some internal disagreements, as they weighed mixed economic data. Global oil prices remained volatile, reflecting ongoing tensions around OPEC+ production cuts and the ever-present uncertainty of U.S. tariffs. As such, analysts are staying cautious, with many predicting rate cuts later in the year if the economy weakens further.
Canadian Market Overview
In July, the Canadian stock market demonstrated resilience, with the S&P/TSX Composite Index rising 1.69% and setting new highs, driven by investor optimism despite economic uncertainties. On a year-to-date basis, the index has gained 12.03% in total return. However, there are indications that the economic growth is slowing down. Real GDP contracted by 0.1% in May, primarily due to a 1.2% decline in the retail industry. Growth estimations for June point to a modest 0.1% uptick, which will potentially lead to flat growth for the second quarter, versus a 1.5% contraction expected previously. This decline was partly due to trade disruptions and external economic pressures affecting key sectors like manufacturing and energy.
In June, inflation ticked up slightly, with the CPI rising by 1.9% compared to last year, up from 1.7% in May. Meanwhile, the trim-CPI came in at 3%. While inflation has eased, there are still signs that prices aren’t completely under control. On July 30, the Bank of Canada decided to keep its key interest rate at 2.75%, taking a cautious stance. Going forward, the Bank’s rate decisions will be data-driven, with the possibility of rate cuts if the economy weakens further and inflation continues to cool.
Canadian Sector Performance
Sector performance was mixed during July, reflecting underlying economic challenges. The top-performing sectors were:
- Communication Services rose by 5.04%, driven by strong earnings in telecom companies and increased demand for digital services.
- Real Estate increased 4.71%, benefiting from declining bond yields and rising home sales in the Toronto area, which boosted investor confidence.
- Information Technology increased 4.51%, fueled by robust performance in software and hardware companies.
Important Dates
- August 8: Canada Unemployment data
- August 12: U.S. CPI Inflation (July)
- August 19: Canada CPI Inflation (July)
- August 22: Canadian Retail Sales
Portfolio Strategy Tip
In this complex investment landscape, we recommend avoiding excessive exposure to any specific sector and instead focusing on a balanced approach across equities and bonds. A well-rounded portfolio, with exposure to both growth and defensive positions, can help weather potential volatility while capturing upside in case the market stabilizes during the second half of 2025. For instance, quality dividend-paying stocks can provide a solid income stream, while growth stocks in areas like technology and healthcare may offer upside potential. Additionally, investors might benefit from market volatility by taking advantage of it to rebalance and apply dollar-cost averaging.
Final Thoughts
The Canadian economy is navigating a period of uncertainty, with mixed economic signals and external risks affecting sentiment. While it’s neither contracting sharply nor experiencing rapid growth, recession fears have eased. Therefore, we believe the outlook depends on key factors like the potential for a tangible U.S. trade agreement and the Bank of Canada’s next moves, particularly whether rate cuts might be necessary to boost growth. Despite these challenges, the resilience of the equity market and the steady monetary policy offer cautious optimism. However, with inflationary pressures still looming, investors should stay vigilant. Hence, a diversified portfolio focused on quality investments will be crucial as market performance doesn’t always align with economic data, and macroeconomic trends continue to evolve.