Q3 2025 Market Summary

Wrapping up Q3 2025, this quarter delivered solid gains for markets despite lingering trade uncertainties and shifting global policies. From our vantage point here at The Steele Group of Assante Financial Management Ltd, the tide has clearly turned toward optimism, fueled by central banks finally pivoting to rate cuts, which is breathing fresh life into economic activity and investor confidence. Inflation continues its steady cooldown, corporate earnings are surprising to the upside given the news headlines from this year, and sectors like technology and materials are leading a broad-based rally. While challenges like U.S. tariffs remain, the resilience we've seen underscores the value of staying diversified and focused on quality.

Q3 marked a pivotal shift in monetary policy, with both the Bank of Canada (BoC) and the U.S. Federal Reserve (Fed) delivering rate cuts that have eased borrowing costs and supported consumer spending. The BoC reduced its policy rate to 2.5% in September signaling confidence in sustained disinflation after the previous cut to 2.75% back in March. This marks the restart of an easing cycle paused earlier in the year, aimed at countering trade headwinds while keeping inflation in check. Similarly, the Fed lowered its federal funds rate by 25 basis points to 4-4.25% in September, with markets pricing in another cut early in Q4 reflecting a balanced view of a cooling labor market and fading inflation risks.

On the inflation front, Canadian CPI rose 2.4% year-over-year in September, up slightly from August's 1.9% but well within the BoC's 1-3% target band, driven by moderated gasoline declines and steady grocery prices. Core measures like CPI trim ticked up modestly to 2.6%, but overall trends point to a "soft landing" rather than reacceleration. For reference CPI-trim is a measure of core inflation that excludes the price changes of the most volatile items in the Consumer Price Index (CPI) basket for a given month. U.S. data echoes this, with core PCE (Personal Consumption Expenditures price index) holding around 2.8% and supporting further easing. GDP growth estimates for Canada sit at a healthy 1.8% for 2025, buoyed by resilient consumption and housing rebounding from prior rate hikes.

These policy tailwinds have been a game-changer, reducing the drag on households and businesses while keeping recession odds low (just 4% for the U.S., per recent bets). It's a welcome pivot from the higher-forlonger era, and one that's already lifting asset prices across the board.

Equities roared back in Q3, building on Q2's rebound and shrugging off tariff jitters to post impressive returns. The S&P/TSX Composite surged 11.8% (12.5% total return including dividends), outpacing many global peers and hitting an all-time high of 30,066 on September 23rd, its first breaking of 30,000 points. Year-to-date, the TSX is up over 20%, a testament to Canada's resource-heavy economy capitalizing on commodity strength.

South of the border, the S&P 500 climbed 8.1% for the quarter (YTD: 14.8%), driven by AI enthusiasm and rate-cut relief, with the index hitting new highs 28 times this year alone. The Nasdaq fared even better at around 12-17% quarterly gains, underscoring tech's enduring appeal.

For the S&P 500, tech (+12.4%) and communication services (+12.75%) led, with the "Magnificent 7" posting 14.9% earnings growth, far outpacing the broader index's 9.2% blended growth. Consumer defensives lagged (-2.71%), but even they remain positive YTD. Overall, 89.5% of reporting S&P 500 firms beat earnings estimates, a strong beat rate signaling corporate health.

Bonds enjoyed a relief rally as rates fell, with the Canadian 10-year yield dipping to ~3.2% amid BoC cuts making duration a friend again. U.S. Treasuries saw similar moves, with the curve steepening post-Fed action, favoring intermediate bonds. Credit spreads tightened, rewarding quality corporates.

Looking ahead, we see continued upside as rate cuts gain traction—potentially two more from the BoC and Fed by year-end—while Q3 earnings momentum (S&P 500 at 9.2% growth) spills into Q4 forecasts of 7.4%. Key themes: AI-driven tech innovation, a materials/energy rebound from green/energy transition plays, and defensive financials thriving in lower rates. Election volatility and trade talks could spark dips, but history favors buying them, recalling Q2's tariff scare turned quick recovery.

Lastly, in September our team hosted Kabi Thaya an Institutional Strategist from Munro. Kabi joined Munro Partners in April 2021 and is currently based out of Toronto, Canada. Kabi’s primary mandate as a client facing professional includes serving as a conduit between their Investment Team and various channels representing the Canadian asset base at CI Global Asset Management. Combining a thorough understanding of their investment philosophy and process with regular interactions with their investment team, Kabi provides investors and prospective investors with insights on Munro’s portfolio management decision-making, ranging from risk management, stock selection and general market sentiment in order to enhance their client servicing presence in Canada.

The call delved into the topic of investing within artificial intelligence and the downstream impacts in the energy sector. The discussion included an overview on why Artificial Intelligence, which is a key investment theme for Munro Partners. Kabi explained their investment approach to Artificial Intelligence and provided specific examples of companies that are expected to be major beneficiaries of this technology. The increasing demand for our energy grid and the requirement to explore longer term sustainable options. The video included Q&A throughout the session.

To view a replay of this call, please click the image below or here

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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. Additional references: https://www.bankofcanada.ca/2025/09/fad-press-release-2025-09-17/ https://www.reuters.com/world/americas/bank-canada-cuts-rates-25-says-ready-cut-again-if-risks-rise-2025-09-17/ https://www.federalreserve.gov/newsevents/pressreleases/monetary20250917a.htm https://www.cnbc.com/2025/10/28/fed-rate-cut-preview.html https://www150.statcan.gc.ca/n1/daily-quotidien/251021/dq251021a-eng.htm https://economics.td.com/ca-cpi https://www.forbes.com/sites/bill_stone/2025/10/26/sp-500-surges-magnificent-7-earnings-rate-cut-andai-boom-drive-q3/ https://www.forbes.com/sites/bill_stone/2025/10/26/sp-500-surges-magnificent-7-earnings-rate-cut-and-ai-boomdrive-q3/ https://get.ycharts.com/resources/blog/q3-2025-earnings-tracker/ https://insight.factset.com/sp-500-earnings-season-updateoctober-24-2025 https://www.youtube.com/watch?v=O7VYamAr714