Monthly portfolio brief
A dish of clarity with a side of caution
What you need to know
- U.S. policy clarity helped boost markets in July before additional tariff threats and U.S. labor-market concerns caused weakness heading into August.
- Canadian and non-U.S. international stocks have led markets this year, but U.S. equity had recently regained momentum, and bonds have added value for disciplined investors as well.
- Globally diversified portfolios have demonstrated resilience through this year’s haze of uncertainty, but avoid complacency with the design of yours by staying proactive.
- We recommend a focus on quality and balanced diversification to help with the potential for volatility, including by trimming outperformers that have become too overweight.
- We also recommend a tilt toward U.S. equity over bonds and non-U.S. large-cap stocks, and toward intermediate- and long-term bonds within fixed-income allocations.
Portfolio tip
A well-defined, appropriately diversified investment strategy can help keep your portfolio’s potential fluctuations aligned with your risk and return objectives and your emotions in check during market volatility.

This chart shows the performance of equity and fixed-income markets over the previous month and year.

This chart shows the performance of equity and fixed-income markets over the previous month and year.
Where have we been?
Much-needed U.S. policy clarity helped boost markets and well-diversified portfolios in July, but markets weakened on renewed economic concerns as August trade deadlines approached. July brought the passage of the One Big Beautiful Bill in the U.S. and new agreements between the U.S. and a variety of trading partners. These events helped remove uncertainty that had weighed on markets in recent months. Combined with rising corporate profits and encouraging economic data, these developments fueled optimism among investors and sent equity markets toward multiple all-time highs.
However, the full impact of these U.S. policy shifts will likely take time to surface in economic data, with varying effects across regions, sectors, and asset classes. Meanwhile, Canada and other U.S. trading partners continue to negotiate their trading relationship with some agreements yet to be finalized, which pressured markets as August deadlines approached. This ongoing climate of ambiguity led several major central banks, including the Bank of Canada, to hold monetary policy rates steady in July as they await additional data to help assess the future for inflation and economic growth.
Global diversification has served investors well in 2025, helping portfolios stay resilient amid rotating equity leadership. Canadian and non-U.S. international equity asset classes continued to hold the top spots year to date through July, largely driven by the strong outperformance they locked in during the first few months of 2025.
More specifically, small- and mid-cap stocks across Canadian and overseas developed markets have been the year's best performers — with larger-sized stocks and emerging-market stocks following closely behind. Their outperformance has partially been driven by:
- Increasingly stimulative fiscal and/or monetary policies in regions like Canada and Europe
- Investor interest in investments with lower valuations outside the U.S.
- New trade deals
More recently, however, U.S. stocks had regained momentum as some trade tensions eased and earnings remained solid, before weakening amid renewed tariff and labor-market concerns in early August. They outperformed in July, led by tech but also supported by strength across some cyclical and defensive sectors. This suggests the potential for broadening leadership and a bit of catch-up.
Bonds provided stability and income amid shifting policies, demonstrating their value in well-diversified portfolios. Bonds have also helped lift portfolio returns this year, benefiting from their interest income and contained credit spreads. Lower-quality bonds stand out as top performers within fixed-income markets. And while their stability and diversification benefits cushioned the market pullback in the second quarter, fixed-income asset classes have generally lagged the strong gains within equities in 2025, including additional weakness in July.
What do we recommend going forward?
While globally diversified portfolios have demonstrated resiliency in a rather turbulent year, avoid becoming complacent with your portfolio’s design. To help you stay opportunistic through year-end, particularly amid the potential for periodic volatility, consider these actions:
1. Proactively rebalance to help keep your portfolio’s diversification aligned with your risk and return objectives as markets shift. Designing a portfolio to follow a goal-oriented, well-defined diversification strategy can help keep its potential fluctuations aligned with your comfort with risk and investment objectives and your emotions in check during market volatility.
While markets steadily climbed higher earlier this summer, resulting in broad gains, performance has been uneven across asset classes. Broadening the lens, stocks — particularly tech-focused growth stocks — have meaningfully outperformed high-quality bonds in recent years. Because of this, your portfolio’s allocations may have become misaligned with your risk and return objectives.
To stay proactive, evaluate your need to rebalance, and maintain a global approach to your diversification. Consider adding to asset classes that have become too underweight relative to your longer-term targets. Talk with your financial advisor about potentially putting sidelined cash to work or reallocating from positions that have become too overweight.
2. Overweight equity investments by targeting higher allocations in U.S. stocks, leaning into cyclical, defensive and growth sectors. Recent strong returns and higher valuations may temper future gains within U.S. equity, especially as trade policy implementation leads to higher inflation and more modest economic growth in the near term.
Despite the potential for bumps along the way, we believe U.S. stocks across market capitalizations remain attractive. We expect corporate profits and economic fundamentals to remain supportive, helped by:
- Additional Federal Reserve interest rate cuts
- The potential for deregulation
- A modest boost from fiscal policy
- Ongoing tailwinds within tech
- Further de-escalation in trade tensions
We expect this backdrop to help broaden leadership, further supporting momentum within U.S. equity. We believe cyclical and defensive segments of the market should participate in gains in the quarters ahead, along with key artificial intelligence (AI) beneficiaries and growth-style stocks.
Diversifying across different U.S. stock-market capitalizations can also help manage your portfolio’s quality amid the potential for volatility while capturing upside from the potential for U.S. economic growth to reaccelerate heading into 2026. Diversifying across sectors can also help keep you prepared for periodic volatility and rotating leadership. We favour consumer discretionary, financial services and health care stocks over the next six to 12 months — consider overweighting these sectors within your Canadian and U.S. equity allocations.
3. Within bonds, focus on quality, and consider overweighting intermediate- and long-term maturities. Interest rates remain elevated relative to recent history, which helps enhance bonds’ forward return potential and diversification benefits. Inflation and U.S. deficit concerns may cause volatility within fixed-income allocations. But we expect slowing — though still positive — growth and additional monetary policy rate cuts to help longer yields remain range-bound.
To help manage risks within bonds in this environment, focus on quality, keeping Canadian investment-grade bonds as the core of your bond allocations, even if slightly underweight the asset class. We also recommend reduced allocations to international high-yield bonds, given historically low credit spreads. To help lock in the benefits of today’s higher yields, we recommend overweighting intermediate- and long-term maturities within your Canadian investment-grade bond allocations.
We're here for you
Establishing portfolio diversification and rebalancing strategies based on the goals you’re trying to achieve can help prevent you from becoming complacent as markets shift. In addition, our opportunistic guidance can help you identify timely adjustments based on a shorter outlook horizon. Talk with your financial advisor about the strategic allocations built into your portfolio and how you may adapt your positioning based on today’s opportunities while balancing your specific circumstances.
If you don’t have a financial advisor, we invite you to meet with an Edward Jones financial advisor to help you design a portfolio based on a well-defined, appropriately diversified investment strategy aligned with what you’re aiming to achieve.
Strategic portfolio guidance
Defining your strategic investment allocations helps to keep your portfolio aligned with your risk and return objectives, and we recommend taking a diversified approach. Our long-term strategic asset allocation guidance represents our view of balanced diversification for the fixed-income and equity portions of a well-diversified portfolio, based on our outlook for the economy and markets over the next 30 years. The exact weightings (neutral weights) to each asset class will depend on the broad allocation to equity and fixed-income investments that most closely aligns with your comfort with risk and financial goals.
Diversification does not ensure a profit or protect against loss in a declining market.

Within our strategic guidance, we recommend these asset classes:
Equity diversification: Canadian large-cap stocks, U.S. large-cap stocks, developed overseas large-cap stocks, Canadian small- and mid-cap stocks, U.S. small- and mid-cap stocks, developed overseas small- and mid-cap stocks, emerging-market stocks.
Fixed-income diversification: Canadian investment-grade bonds, international bonds, international high-yield bonds, cash.

Within our strategic guidance, we recommend these asset classes:
Equity diversification: Canadian large-cap stocks, U.S. large-cap stocks, developed overseas large-cap stocks, Canadian small- and mid-cap stocks, U.S. small- and mid-cap stocks, developed overseas small- and mid-cap stocks, emerging-market stocks.
Fixed-income diversification: Canadian investment-grade bonds, international bonds, international high-yield bonds, cash.
Opportunistic portfolio guidance
Our opportunistic portfolio guidance represents our timely investment advice based on current market conditions and a shorter-term outlook. We believe incorporating this guidance into a well-diversified portfolio may enhance your potential for greater returns without taking on unintentional risks, helping to keep your portfolio aligned with your risk and return objectives. We recommend first considering our opportunistic asset allocation guidance to capture opportunities across asset classes. We then recommend considering opportunistic equity sector and Canadian investment-grade bond guidance for more supplemental portfolio positioning, if appropriate.

Our opportunistic asset allocation guidance is as follows:
Equity —overweight overall; underweight — Canadian large-cap stocks and developed overseas large-cap stocks; neutral — Canadian small- and mid-cap stocks, developed overseas small- and mid-cap stocks, and emerging-market stocks; overweight — U.S. large-cap stocks and U.S. small- and mid-cap stocks.
Fixed income —underweight overall; underweight — Canadian investment-grade bonds and international high-yield bonds, neutral — international bonds and cash.

Our opportunistic asset allocation guidance is as follows:
Equity —overweight overall; underweight — Canadian large-cap stocks and developed overseas large-cap stocks; neutral — Canadian small- and mid-cap stocks, developed overseas small- and mid-cap stocks, and emerging-market stocks; overweight — U.S. large-cap stocks and U.S. small- and mid-cap stocks.
Fixed income —underweight overall; underweight — Canadian investment-grade bonds and international high-yield bonds, neutral — international bonds and cash.

Our opportunistic equity sector guidance follows:
Overweight for consumer discretionary, financial services and health care
Neutral for communication services, energy, industrials, real estate, technology and utilities
Underweight for consumer staples and materials

Our opportunistic equity sector guidance follows:
Overweight for consumer discretionary, financial services and health care
Neutral for communication services, energy, industrials, real estate, technology and utilities
Underweight for consumer staples and materials

Our opportunistic Canadian investment-grade bond guidance is overweight in interest rate risk (duration) and neutral in credit risk.

Our opportunistic Canadian investment-grade bond guidance is overweight in interest rate risk (duration) and neutral in credit risk.
Tom Larm, CFA®, CFP®
Tom Larm is a Portfolio Strategist on the Investment Strategy team. He is responsible for developing advice and guidance related to portfolio construction, asset allocation and investment performance to help clients achieve their long-term financial goals.
Tom graduated magna cum laude from Missouri State University with a bachelor’s degree in finance. He earned his MBA from St. Louis University, is a CFA charter holder and holds the CFP professional designation. He is a member of the CFA Society of St. Louis.
Important information
Past performance of the markets is not a guarantee of future results.
Diversification does not ensure a profit or protect against loss in a declining market.
Investing in equities involves risk. The value of your shares will fluctuate, and you may lose principal. Mid- and small-cap stocks tend to be more volatile than large-company stocks. Special risks are involved in international and emerging-market investing, including those related to currency fluctuations and foreign political and economic events.
Rebalancing does not guarantee a profit or protect against loss and may result in a taxable event.
Before investing in bonds, you should understand the risks involved, including credit risk and market risk. Bond investments are also subject to interest rate risk such that when interest rates rise, the prices of bonds can decrease, and the investor can lose principal value if the investment is sold prior to maturity.
The opinions stated are as of the date of this report and for general information purposes only. This information is not directed to any specific investor or potential investor and should not be interpreted as specific recommendations or investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation.