Market Commentary – Third Quarter 2025

The following market commentary is courtesy of the Plan’s Canadian Equity investment manager, Connor, Clark & Lunn Investment Management.

The third quarter of 2025 saw a clear shift in the North American growth narrative, with labour market weakness moving to the forefront. In Canada, employment contracted in both July and August, lifting the unemployment rate to its highest level in nearly a decade outside the pandemic. In the US, job growth slowed materially, with significant downward revisions to past monthly payroll gains. Despite this, consumer demand remained robust. Tariffs continued to be a key consideration for investors; however, concerns diminished due to implementation delays and the establishment of new trade agreements. As a result, risk assets performed well. Equity markets finished the quarter near record high levels. Commodity markets displayed varied performance, with gold prices experiencing significant gains while WTI crude oil declined for the third consecutive quarter. Meanwhile, bond yields broadly declined during the period.

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The advancement in equity markets was supported by lower-than-anticipated tariffs rates, better-than-expected corporate earnings and accommodative monetary policy measures. Canadian equities posted notable gains, led by strength in the gold sector as gold prices reached record highs. During the third quarter, the S&P/TSX Composite delivered a return of 12.5%, outperforming the S&P 500 and the MSCI All Country World Index, which each posted a return of 8.1% in local-currency terms. Emerging market equities rose 12.5% in local-currency terms and, similar to Canada, benefitted from exposure to precious metals.

The US Federal Reserve (Fed) and the Bank of Canada (BoC) lowered their target interest rates by 25 basis points (bps) each to 4.0-4.25% and 2.5%, respectively. All in for the quarter, two-year yields fell 13 bps in Canada and 11 bps in the US, while 10-year yields fell 10 bps in Canada and 8 bps in the US. Credit spreads narrowed, and the FTSE Canada Universe Bond Index rose by 1.51% over the third quarter.

Disclaimer

Unless stated otherwise, all data is as at September 30, 2025 and stated in Canadian dollars. Source: Connor, Clark & Lunn Financial Group Ltd., Merrill Lynch, Pierce, Fenner & Smith Incorporated, S&P Global Ratings, and MSCI.