Market Commentary – Second Quarter 2025

The following market commentary is courtesy of the Plan’s Canadian Equity investment manager, Leith Wheeler Investment Counsel LTD.

The second quarter of 2025 was another example of why trying to predict (or time) markets over the short term is fraught with danger. Stocks came under significant pressure to begin the quarter with the S&P/TSX Composite down nearly 10% from March 31 to April 8. The market selloff was triggered by Trump’s announcement on “Liberation Day” that he would unveil reciprocal tariffs on countries around the globe. However, by the end of the quarter stocks were pushing into record territory amid optimism the United States is making progress on trade deals and extending tax cuts. Overall, the S&P/TSX Composite ended the quarter up 8.5% with the S&P 500 & MSCI EAFE also increasing 4.9% and 5.7%, respectively (all figures in Canadian dollar terms). While it is difficult to predict where we go next with tariffs, the recent rally in stocks is a reflection that markets are trying to look through the short-term noise and assess where things will ultimately land. Bond returns were slightly negative as interest rates increased marginally during the quarter.

Volatility will persist but there continues to be reasons for optimism for investors taking a longer term view. We highlighted in last quarter’s report that the threat of tariffs may serve as a catalyst to drive structural reforms that could strengthen Canada’s economic foundation in the long run. An early example of this is Prime Minister Carney’s initiative to fast-track major infrastructure projects, focusing on proposals that could create a more independent Canadian economy; and importantly, have buy-in from Indigenous communities. In Europe, Germany announced a landmark €500 billion fiscal stimulus program to be deployed over the next decade, signaling a major policy shift. This initiative coincides with the suspension of the constitutional “debt brake”, which has historically constrained public investment. For the first time in a generation, Germany is prepared to use its balance sheet aggressively to stimulate growth through investment in infrastructure, energy transition, and industrial revitalization. Germany is uniquely positioned among developed nations to pursue this path as it holds the lowest net debt-to-GDP ratio of any G7 country. While challenges remain, including legal uncertainties and political resistance, even partial execution of this program would mark a significant shift in Europe’s macro environment, with positive spillovers across the continent.

Disclaimer

Unless stated otherwise, all data is as at June 30, 2025 and stated in Canadian dollars. Source: Leith Wheeler Investment Counsel LTD.