Investment update Q3 2025
Market performance
Stock markets hit record levels
North American stock indexes opened the third quarter at, or near, record highs and didn’t look back. Investors brushed off tariff-related inflation risks and bet that central banks would resume cutting interest rates to support economic activity. The major U.S. stock indexes – the S&P 500, Nasdaq and Dow – closed Q3 at, or near, record-high levels. Canada’s benchmark TSX, which has outpaced its U.S. counterparts on a year-to-date basis, was also at an all-time high.
U.S. tariffs took effect
On August 7 - 200 days into President Trump’s return to the White House - U.S. tariffs ranging from 10% to 50% on goods from more than 60 countries took effect. Trading partners that had reached agreements with Washington, including the EU, Japan and South Korea, became subject to 15% tariffs on most goods. Countries without deals, such as Switzerland and Brazil, faced steeper duties of up to 50%.
These measures followed the previously announced 35% tariffs on Canadian goods not covered by the Canada-United States-Mexico Agreement, as well as sector-specific tariffs on steel, aluminum, copper and automobiles. On social media, Trump celebrated: “Billions of dollars in tariffs are now flowing into the United States of America!” and “Tariffs are flowing into the USA at levels not thought even possible!”
Central banks resumed rate cuts
On September 17, the Bank of Canada and the U.S. Federal Reserve (the Fed) followed through on - what’s expected to be - the first of two interest-rate cuts by each central bank before the end of 2025. Each lowered their key rates by 25 basis points, leaving the Bank of Canada’s rate at 2.5% and the Fed’s target range at 4% to 4.25%. This was the first rate cut for the Bank of Canada dating back to March 12. In his official statement, Bank of Canada Governor Tiff Macklem outlined three developments that informed the decision: a softening Canadian labour market, diminishing upward pressure on inflation and Canada’s removal of most retaliatory tariffs on the U.S. Macklem said to reporters, “Considerable uncertainty remains. But with a weaker economy and less upside risk to inflation, governing council judged that a reduction in the policy rate was appropriate to better balance the risks going forward.” For the Fed, the decision marked the first rate reduction since December 18, 2024. Explaining the Fed’s rationale, Chair Jerome Powell said: “This was a risk-management cut. The labour market is softening, and we want to ensure we don’t fall behind the curve.”
Stronger-than-expected corporate earnings reports and resilient economic data, with inflation being the most important for investors, helped offset losses in Q2. The impact of tariffs and trade wars didn’t have the immediate shock that was initially expected, though investors could start to see that trickle through in Q3 as more data becomes available.
The stock and bond markets*
| Index | Close | Q3 | YTD |
|---|---|---|---|
| S&P/TSX Composite | 30,022.81 | 11.79% | 21.41% |
| Dow Jones Industrial Average | 46,397.89 | 5.22% | 9.06% |
| S&P 500 Index | 6,688.46 | 7.79% | 13.72% |
| NASDAQ Composite | 22,660.01 | 11.24% | 17.34% |
| 10-yr GoC Yield | 3.17% | -0.11% | -0.06% |
| 10-year U.S. Treasury Yield | 4.16% | -0.08% | -0.42% |
| WTI Crude Oil (US$/barrel) | $62.37 | -4.21% | -13.04% |
| Canadian Dollar | US$0.72 | -1.98% | 3.35% |
| Bank of Canada Prime 4.70 % | |||
*Performance ending June 30, 2025. Sources: Bloomberg.
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