Q2 2025 Market Summary

With headlines continuing to focus on political soundbites and trade disputes, it's easy to feel overwhelmed by noise. At The Steele Group of Assante Wealth Management Ltd, we believe clarity comes from stepping back and evaluating the facts, not the fears. This quarter, we offer insight into the market recovery, shifting inflation dynamics, and how new economic developments could influence investment strategies.

Q2 saw a sharp turnaround following the Q1 market correction. After April’s selloff driven by U.S. tariff announcements, markets stabilized and rebounded on stronger-than-expected economic data and optimism around long-term investment activity.

The S&P 500 surged upwards 10%+, rebounding from Q1 losses and marking one of its best quarters in years. The Nasdaq led with 16%+ growth, fueled by AI-related optimism and strong tech earnings. The Dow climbed 5%+, a steadier but positive move in line with economic expansion.

Resilience in consumer spending, strength in the labor market, and clarity around Federal Reserve policy helped fuel the rally. Despite tariff-related costs rippling through some sectors, corporate earnings have largely, and maybe surprisingly, remained to the upside.

Global equities followed suit with strong Q2 gains. The MSCI ACWI ex-U.S. index (world markets less US equities) rose 12%+, while emerging markets gained 11%+ —benefiting from a temporarily weaker U.S. dollar and easing trade concerns in Asia.

Europe’s major indices (DAX, CAC 40, Euro Stoxx 50) posted 6–8% returns, buoyed by monetary support and fiscal stimulus aimed at countering U.S. tariffs. China’s economy expanded at a 5.2% YoY pace in Q2, stabilizing its markets despite persistent real estate weakness. Japanese equities saw modest gains amid growing capital investment and a weaker yen. These global trends played out against a complex backdrop of trade negotiations, policy recalibration, and inflation concerns in both the U.S. and Canada.

Canada entered Q2 with lingering uncertainty, but the federal election marked a potential turning point. The newly elected government—while continuing to project a firm tone publicly—has already initiated direct trade negotiations with the U.S. administration. These talks are still in the early stages, but both sides have signaled a willingness to find common ground, particularly around industrial tariffs and automotive supply chains.

While prior retaliatory tariffs had limited impact, the shift to dialogue has been welcomed by markets and businesses. Canadian companies, which had been delaying investment decisions due to political and trade ambiguity, are now cautiously re-engaging in strategic planning. Although challenges remain, the renewed diplomatic engagement suggests that a resolution may be achievable within the coming quarters. 

With approximately 25% of Canada’s GDP reliant on trade with the U.S., long-term economic decoupling remains neither realistic nor desirable. The current government's approach appears aimed at restoring stability while maintaining national interests—a balance that could help lift Canadian business confidence heading into the second half of the year.

Despite this backdrop, Canadian markets saw modest gains, mirroring the global trend. Investor sentiment remains fragile but could improve with policy clarity.

The combination of high spending commitments and tariff regimes is reminiscent of COVID-era stimulus dynamics. While supportive of growth, they carry inflation risk. Investors should brace for potential policy lags and renewed price pressures if growth overheats or supply chains remain strained.

In the US, Federal Reserve Chair Jerome Powell faces continued pressure from the Trump Whitehouse to lower interest rates. The US Federal Reserve held rates steady in June but signaled potential rate cuts later in the year—contingent on inflation cooling further. The bond market has adjusted to reflect a later and shallower easing cycle than previously expected.

Another key consideration for Jerome Powell and the Federal Reserve is U.S. unemployment. June’s unemployment rate held steady at 4.1%, with 93,000 new jobs added. While hiring was broad-based, the growth was modest—reflecting a balancing act between tight labor conditions and slowing wage growth. Hourly earnings grew 3.7% YoY, indicating inflationary pressures are softening. For reference Canada is currently at 6.9% unemployment as of the end of June.

Overall Q2 provided a welcome rebound in global markets, as investor sentiment stabilized and inflation data, while mixed, remained within manageable ranges. With ongoing trade negotiations, fiscal investment, and monetary policy still unfolding, the months ahead may offer both opportunity and volatility.

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The opinions expressed are those of the author and not necessarily those of Assante Financial Management Ltd. This material is provided for general information and the opinions expressed and information provided herein are subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on the information presented, please seek professional financial advice based on your personal circumstances.