Markets Commentary: Third Quarter 2025

Overview of the global economy

The Bank of Canada reduced the Overnight Lending Rate by 25 basis points to 2.50 percent in September. The Bank of Canada remains poised for additional cuts into continued trade uncertainty and weakening Canadian labor conditions. The unemployment rate in Canada climbed to 7.1 percent in August.

In the U.S. the Federal Reserve reduced its benchmark rate by 25 basis points to 4.00–4.25 percent in September, with further rate cuts anticipated given continued weakness in labor markets and despite moderately elevated inflation data. August’s monthly CPI increase of 0.4 percent lifted annual inflation to 2.9 percent as the impact of current and anticipated price increases from tariffs continued to slowly seep into the economy. The Fed’s preferred measure of inflation, Core PCE (Personal Consumption Expenditures), increased by 0.2 percent in August with an annualized rate of 2.9 percent.

The annualized U.S. unemployment rate increased to 4.3 percent in August with further weakness in labor markets as the Bureau of Labor Statistics reported below-consensus hiring estimates of 22,000 jobs vs 75,000 forecast, along with a combined net downward revisions to June and July of 21,000 jobs.

Canadian equity market

The Canadian Equity Market advanced 12.5 percent in the third quarter of 2025, as measured by the S&P/TSX Composite Index. The index has returned 23.95 percent year to date.

The Materials sector was the top-performing sector for the quarter, driven by the outsized performance of gold miners, producing a return of 37.8 percent in Q3. This was followed by Information Technology at 13.21 percent for the quarter. Growth and technology stocks sustained their strong performance from the previous quarter. The Industrials sector was the lone detractor in Q3, producing a negative return of 1.36 percent.

U.S. equity markets

US equities had a fifth consecutive month of positive returns, with the S&P 500 up 3.6 percent in September as it hit 23 record closing highs to make this the best September performance in fifteen years.

U.S. equities produced 8.12 percent return in Q3 as measured by the S&P 500 Index^® in USD. The index has returned 14.83 percent year to date.

On a sector basis for the quarter, Information Technology at 13.2 percent and Communication Services at 12.04 percent were the top contributors. The Consumer Staples sector was the lone detractor in Q3, producing a negative return of 2.36 percent.

International equity markets

International equity markets were also positive for the quarter with emerging regions significantly ahead of developed regions. EAFE produced a local currency return of 5.38 percent for Q3 and is up 13.63 percent year to date. EM was positive 12.18 percent in local currency in Q3. Year to date the MSCI Emerging Markets Index has produced a return of 24.08 percent. Emerging regions have outperformed developed regions on a year-to-date basis.

Fixed income markets

Canadian bond market returns were postive for the quarter. The FTSE Canada Corporate Bond Index produced a return of 1.81 percent in Q3. The FTSE Canada Government Bond Index grew at 1.41 percent and the FTSE Canada Universe Index increased by 1.51 percent in Q3. The FTSE Canada Universe Index is up 2.98 percent year to date.

U.S. fixed income markets were positive with the Bloomberg U.S. Aggregate Index up 2.03 percent for the quarter and 6.13 percent year to date in USD. The U.S. Treasury yield curve modestly steepened in anticipation of further rate cuts and weakening employment data. Mortgage-backed securities, investment-grade corporates and high yield all had spreads tighten with heavy new issuance of the latter to take advantage of a favorable rate environment.

Looking ahead

September ended on the eve of a U.S. government shutdown of unknown duration due to political differences regarding fiscal spending. Generally, the stock market has taken such events in stride, but that may ultimately depend on the length of the stalemate. The shutdown does mean that certain key economic monitoring data, including the September U.S. jobs report, will not be available from government sources. The Fed, having prioritized weakening labor market conditions with the September rate cut decision, may look to private sector jobs data at their October policy meeting. As such, it is worth noting that payroll processor ADP reported a net loss of 32,000 corporate jobs in September, which is suggestive of a slowing economy and further monetary policy easing.