Market Commentary – First Quarter 2025

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

The first quarter of 2025 was characterized by a high degree of uncertainty due to escalating trade tensions. The strategy of the Trump administration appeared to cultivate instability. Although many tariff announcements were primarily threats and posturing with corresponding delays in implementation, their impacts were evident in market sentiment, consumer confidence, and business outlook surveys — all of which deteriorated significantly during this period. Inflation reports indicated persistent issues that, combined with slowing economic growth, complicated policy decisions for central banks. Equity markets experienced periods of significant volatility, particularly within the technology sector, while bond yields declined across the yield curve in both Canada and the U.S. Growing inflation concerns resulting from tariffs led the price of gold to post its largest quarterly increase since 1986.

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With heightened tariff and growth concerns, global equity markets sold off in the first quarter as the MSCI All Country World Index posted a return of -2.0% in local currency terms (-1.2% in Canadian Dollars). Furthermore, investor sentiment was impacted by the introduction of DeepSeek, a cost-effective AI model developed in China, which prompted uncertainty concerning investments in technology stocks. Consequently, the technology sector experienced significant underperformance over the quarter. Regions with less exposure to the tech sector, including Canada and emerging markets, experienced positive returns (1.5% and 2.7% in local-currency terms, respectively). These regions also benefited from exposure to the gold industry, which was the top performing sector.

The U.S. Federal Reserve (Fed) maintained its target rate at 4.25-4.5%, while the Bank of Canada (BoC) reduced its overnight rate by a total of 50 basis points (bps) across two meetings, bringing the overnight rate to 2.75%. All in for the quarter, two-year yields fell 43 bps in Canada and 35 bps in the U.S., while 10-year yields fell 24 bps in Canada and 35 bps in the U.S. Credit spreads widened during the period. The FTSE Canada Universe Bond Index rose 2.02% over the first quarter.

Disclaimer

Unless stated otherwise, all data is as at March 31, 2025 and stated in Canadian dollars. Sources: Merrill Lynch, Pierce, Fenner & Smith Incorporated (BofAML), S&P Global Ratings, and MSCI.