Your Financial Review of July 2025
A Spring of Resilience
After a start to the year marked by high volatility, financial markets showed a surprising ability to rebound in the second quarter. The softening of the U.S. administration’s stance on tariffs, combined with generally positive economic data, allowed stock markets to regain ground despite ongoing geopolitical and fiscal uncertainty.
An event that could have caused concern—the downgrade of the U.S. credit rating by Moody’s in May—ultimately had little impact on the markets. Stock and bond indices largely ignored the announcement, likely due to its unsurprising nature. So far, the financing costs for U.S. companies have not been significantly affected.
Israeli strikes on Iran during the night of June 12 marked a major escalation in the Middle East conflict, triggering an immediate reaction in financial markets. The S&P 500 index fell nearly 2% upon news of the attack, while crude oil price, one of the assets most sensitive to geopolitical tensions in the region, jumped 13%, before ending Friday the 13th up 7%. Although this surge briefly increased market volatility, indicators partially recovered afterward. This is clearly signaled by oil prices, which quickly returned to their initial levels following the announcement of a ceasefire.
This type of reaction is not unprecedented. Historically, stock markets have often reacted negatively to the outbreak of armed conflicts, but these declines tend to be short-lived. On average, downturns linked to major geopolitical events last about three weeks, and in 72% of cases, U.S. markets post a positive return one year after hostilities begin, with an average gain of 12.7%. This underscores the importance of maintaining a long-term perspective, even during uncertain times.
Moreover, the recent decision by the U.S. Court of International Trade to invalidate several tariffs imposed under the International Emergency Economic Powers Act (IEEPA) has helped ease trade tensions. This decision, combined with an expected shift toward more accommodative monetary policy by major central banks, supports the idea that the upward trajectory of markets could continue. Global growth forecasts have been slightly revised downward (2.7% for 2025 compared to 3.1% six months earlier), but they remain positive.
Market review as of June 30, 2025
Fixed Income
The Canadian fixed income universe continued its relatively stable start to the year. The Canadian economy evolved largely in line with expectations, and the Bank of Canada kept its interest rate unchanged, allowing bonds to move without significant fluctuations.
As of June 30, 2025, the FTSE Canada Universe Bond Index has posted a year-to-date return of 1.4%, while the FTSE Canada Corporate Bond Index has returned 2.3% over the same period.
Equities
The upward trend in equities continued in June, as investors remained encouraged by the easing of trade tensions between the United States and the rest of the world.
Clearly, the Canadian stock market is attracting interest like rarely seen in recent history, with the S&P/TSX1 reaching record highs with little resistance since May. The rise in gold prices has been a significant tailwind for the index, as the materials sector, the third largest in the S&P/TSX, has greatly benefited over the past year.
Since the beginning of the year, overseas equities (EAFE2,3) have delivered the strongest performance at +19.9%, followed by Canadian equities (S&P/TSX) at +10.2%, and finally U.S. equities (S&P 5002) at +6.2%.
Oil & Gold
Oil prices (USD/barrel) rose sharply following Israel’s surprise airstrikes on Iran, before falling back as tensions eased. WTI4 has posted a decline of 8.5% since the beginning of the year.
Gold prices2 remained unchanged in June, but still rose by 5.1% over the last quarter, bringing their year-to-date gain to +25.1%.
Currencies
The Canadian dollar, boosted by oil prices and reduced appetite for the U.S. dollar, has appreciated by 5.4% against the greenback since the beginning of the year.
1. The S&P/TSX Index is the primary Canadian stock index measuring the performance of the Toronto Stock Exchange.
2. S&P500, MSCI EAFE and gold returns are expressed in US currency.
3. The MSCI EAFE Index is an equity index designed to measure the performance of equity markets in developed economies other than the United States and Canada.
4. West Texas Intermediate (WTI) Crude oil is the North American standard for setting oil prices. The returns are expressed in US currency.
Investment Outlook
Despite ongoing uncertainties, economic data remains broadly encouraging. The risk of a global recession, although elevated in the spring, appears to have diminished as trade tensions have eased. While several trade-related issues remain unresolved, the magnitude of the initially anticipated negative shock now seems more contained. Global economic growth and corporate earnings are expected to remain positive, albeit slightly below historical averages.
It is worth noting, however, that the path forward will remain challenging as long as trade tensions are not fully resolved. Moreover, while an inflationary surge linked to tariffs remains likely, it is expected to be less pronounced than previously feared.
In light of these factors, the Federal Reserve and the Bank of Canada still have room to support the economy, and it is likely that major central banks will continue easing their monetary policies over the next 9 to 12 months.
In this context, our investment strategy remains cautious yet constructive. We continue to favor diversification and discipline, avoiding excessive bets in an environment still marked by political and economic uncertainty.
We remain fully available to further discuss these outlooks and provide insights into your portfolio strategy. We would be pleased to answer your questions and offer any additional clarification you may need.
Sincerely,
Cathy, Guillaume, Marc-Antoine and Inuk
514-871-3474