2025 – Q3 Market Commentary

The North American markets ended the third quarter of 2025 on a cautiously optimistic note. Strong stock performance was overcoming indicators of slower economic growth and persistent policy uncertainty. In the United States, record-breaking gains in technology and financial stocks propelled major indices to new heights. This was supported by strong profitability and the Federal Reserve’s move toward rate decreases. Canada’s markets were also climbing, driven by surging bank profits and commodity prices that continued their rise, even as GDP lowered and tariffs weighed on exports. Across both economies, moderating high inflation, easing monetary policy, and continued trade frictions derived investor sentiment, leaving markets in good shape for now, yet remaining extremely vulnerable to inflationary pressures, geopolitical tensions, and uneven growth trends that could lead to more unpredictability.

Inflation remained a central focus in the U.S. where the Fed mentioned it had “moved up” and stayed “somewhat elevated” [13], while Canada reported CPI growth of 1.9% year over year in August, with core inflation closer to 2.5% [12]. Policymakers tried responding to these mixed signals. In mid-September, the Federal Reserve cut its target rate by 25 basis points to 4.00–4.25%, indicating a softer labor market and renewed inflation risks [13]. The Bank of Canada, after steadily holding rates at 2.75% all summer [2] [10], made an unsuspecting move that surprised markets by following the U.S. with a cut of 25 basis points to 2.50% on Sept. 17. This points to weaker growth and inflation moving closer to target with the cut aimed at encouraging additional spending [3].

Both economies express continued trade-related stress where RBC Economics noted that U.S. tariffs had a significant impact in Canada where nearly all Q2 weakness in exports came from tariffed goods, with manufacturing, transportation, and warehousing sectors facing potential job losses [6]. In the U.S., GDP reports were skewed because many companies rushed to bring in imports before tariff hikes took effect. An activity that later pulled back once the tariffs were in place [8].

U.S. equity markets showed promise while racing to new highs in Q3, backed by strong earnings and expectations of policy easing. The S&P 500 touched 6,500 in mid-September and proceeded to cross 6,600 [5], ultimately prior to closing above 6,692 on Sept. 22, reaching a new record [11]. Technology once again led the way with the continued AI boom powered by the “Magnificent Seven” tech giants, which now accounts for roughly 35% of the S&P 500’s market capitalization [5].

Financial stocks added to the gains as banks saw stronger trading activity and steadier lending profits. On the other hand, defensive sectors lagged. Energy and consumer staples were also projected to post weaker earnings, with lower oil prices and slower retail spending weighing on results [1].

Canadian equities posted strong gains, powered by banks and resource stocks. The S&P/TSX Composite advanced steadily, notching 20% YTD gains and briefly topping 30,000 in September [9]. Financials, which are the backbone of the TSX, drove much of this strength. RBC reported record Q3 profit of C$5.4 billion, up 21% YoY [7]. Bank earnings were supported by steady lending income and lower reserves set aside for potential loan losses [4][7]. Analysts highlighted that loan-loss provisions have dropped to multi-year lows, suggesting credit and lending conditions remain favorable even as unemployment edges closer to 7% [4][2].

Resources also proved to strengthen as gold rallied with bullion hitting a record of C$3,750/oz, lifting many Canadian gold shares [11]. Industrial stocks showed mixed results, and Canada’s smaller tech sector cooled late in Q3 as investors took profits [9].

Despite weak GDP data, investors looked through economic softness, anticipating policy support. The BoC’s surprise September cut was taken as a positive signal that inflation was trending back to 2% and policy rates could remain lower [3]. Money markets quickly shifted their outlook to a 50% chance of another cut by year-end [9][10]. Meanwhile, the Canadian dollar strengthened toward C$1.377/USD as rate differentials narrowed [9].

The third quarter of 2025 presented a complex investment landscape, characterized by unprecedented performance in equity markets that were once again tempered by economic slowdown, geopolitical concerns, and policy uncertainties. While we continued to see gains across Canadian and American markets which has driven major indices to record highs. While the success within public markets has been stellar, persistent trade frictions, inflationary pressures, and rising uncertainty across the globe underscores the need for proper strategic planning and a priority in establishing risk parameters. We continue to closely monitor central bank actions, as interest rate decisions will significantly influence market conditions.

Looking ahead, the North American economy will remain under careful observation. While the U.S. economy is expected to maintain moderate growth and resilience, ongoing political and trade tensions are at the forefront of Canadians minds heading into Q4 as they continue to face economic challenges [14].

In today’s dynamic market environment, we continue to emphasize risk management, diversification, and flexibility to navigate the evolving financial landscape. While short-term fluctuation remains, long-term growth potential persists, underscoring the importance of a patient, disciplined investment approach. Current unpredictability within public markets further highlights the value of exploring alternative strategies that preserve wealth. At Duane Francis Wealth Creation, we remain committed to safeguarding your financial future and helping you achieve your long-term objectives of wealth preservation.

Written By: Connor Boehme

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