Canadian Market Compass video series

Hello everyone and welcome to the year end edition of the market compass.
This year, we have started to see signs of that volatility, with the TSX and S&P 500 experiencing their biggest one-day drawdown since April earlier in October, of over 2%. The VIX volatility index, also known as the Wall Street fear gauge, has also inched higher. It is back near 20 levels, after being in the mid teens for the past several months.

However, keep in mind that this year, like any year, is unique. Markets have been rallying steadily since mid April, with both the TSX and S&P 500 climbing over 30% without a 5%-plus pullback. So we could be due for a period of consolidation or some profit-taking after a nice run higher.

And the markets certainly have had several challenges or walls of worry to climb in recent weeks, including:

• The extended tariff uncertainty, especially between the U.S. and China, and US and Canada which weighs on Canadian exports  and U.S. inflation too;
• The ongoing U.S. government shutdown, which also weighs on economic growth each week that it continues to go on;
• And some emerging concerns around the credit quality of smaller U.S. regional banks, which seem contained for now, but are worth monitoring closely.

Nonetheless, despite the building concerns, we don't see a pullback or correction turning into a deep or prolonged bear market. Why is that? Well there are some positive momentum factors as we head into year-end and 2026. First, both the Bank of Canada and the Fed are likely to continue cutting rates, which should support both the consumer and economic growth. Second, the U.S. tax bill and Canadian budget should kick in next year, which should be supportive of companies spending on capex and R&D. And finally, corporate earnings growth continues to deliver. In fact, the expectation is that both the TSX and S&P 500 earnings will grow about 10% this year and accelerate to approximately 13% in 2026, driven by both tech and non-tech sectors.

So overall, if we do experience a pullback in the weeks ahead, we think there are ways that investors can take advantage of this. We recommend considering three actions:

• Rebalancing: As equity markets have rallied, we may have seen parts of portfolios grow beyond what was originally intended. For example, a balanced portfolio with 60% equities and 40% bonds may now be much more heavily weighted in equities. This is a good opportunity to consider rebalancing the portfolio to realign with the desired equity and bond risk balance.
• Diversifying: Given the outsized rally in a few key sectors, including technology and AI, investors may want to consider diversification of their portfolios, especially into those parts of the market that have more scope for catch-up. This could come by trimming gains in winners and reallocating, or by putting new money to work as well.
• Adding quality investments: If markets do experience a correction or pullback, we think investors should consider being prepared. Have a list of potential quality investments that align with your strategic allocations ready in order to use market corrections as opportunities to add to portfolios. While regularly using dollar-cost averaging to make investments is a tried and true strategy, there may be times that call for more opportunistic investment as well.

While October has the potential to bring some market uncertainty, if investors are prepared, volatility can become an opportunity. And if you need guidance, talk to your financial advisor about strategies like rebalancing, diversifying, and adding quality investments at better prices. They can be your best resource to help ensure your investments stay aligned with your personal long-term financial goals.

And with that, I'll pass it over to Julie.

Thank you, Mona.

The Canadian government will release the federal budget on November 4th as it attempt to balance a growing deficit with ambitious nation building projects. And while Edward Jones will release our annual budget overview examining the proposed changes and how they may impact your ability to reach your financial goals, we recognize that your personal budget may be under stress.

Canadians continue to find themselves surrounded by uncertainty. The unemployment rate is up as businesses attempt to balance rising input costs with lower demand for their goods due to pricing pressures. Core inflation remains steady – albeit stubbornly high at the top end of the Bank of Canadas range. And while markets have held up though continuing global trade uncertainty and the U.S. government shutdown, volatility may still return.

Part of a sound financial strategy is ensuring you have an emergency fund that can provide comfort through uncertainty. We recommend clients keep three to six months worth of total expenses liquid and available for unexpected expenses. However, if you or a loved one work in an industry that may be more susceptible to reduced hours or layoffs within the current environment, it may be prudent to increase the value of your emergency fund in preparation.

While the Bank of Canada has resumed rate cuts, directly impacting savings rates in high interest savings accounts, we still believe short-term, interest-bearing accounts are the best play to hold emergency reserves.
Within your investment portfolio, we recommend a cash allocation of up to 5%. This can help reduce volatility, provide additional funds during periods of lower income or higher than anticipated expenses or be used to rebalance in the future.

Discussions about finances can be stressful - but working with a trusted financial professional can help ease that stress by keeping you focused on your personal financial goals.  Reach out to your Edward Jones financial advisor if you have concerns about the current economic environment or market uncertainty.

With that, I want to thank you for watching and we will see you again next time for the Market Compass.

Despite early-year headwinds from tariffs, the U.S. and Canadians economies showed surprising strength in the first half of 2025. As markets rebound and key policy decisions loom, Mona Mahajan and Julie Petrera outline what investors should watch and where we see opportunities for the second half of the year in this edition of Market Compass.

Hello everyone – and welcome to the Market Compass. 

Believe it or not, we are now heading towards the second half of 2025. We thought this would be a good time to reflect on how the economy and the markets did in the first half, and what we are watching for in the second half of 2025. 

In this episode, we take a look back at key economic data and a look forward into the second half of 2025 and discuss where we see opportunities in portfolios and investments heading into year-end. 

Overall, economic data has delivered in the first few months of the year – despite the uncertainties around tariffs, trade and taxes. 

First, economic growth remained above trend. Statistics Canada reported that Canada's real gross domestic product (GDP) grew by 2.2% on an annualized basis in the first quarter of 2025, primarily driven by exports through pre-tariff inventory build in the U.S. This growth was higher than expected and exceeded the previous quarter's 2.1% growth, highlighting resilience in the Canadian economy in the face of ongoing tariff negotiations. 

While U.S. GDP was soft in the first quarter, driven in large part by a huge spike in inventories, it is on pace to exceed 3% in the second quarter. This is driven by solid household consumption figures of about 2.5%. 

Second, the U.S. labor market has held up despite worries of a slowdown. While job growth is cooling, we continue to see an unemployment rate of around 4.2%, well below the long-term average in the U.S. of about 5.5%. 

Notably, wage gains of around 3.9% continue to outpace inflation, which means consumers are benefiting from positive real wages. In Canada the labour market continues to soften but has yet to show signs of any real concern on the back of small net new job growth in May. The unemployment rate has ticket up slightly +0.1% to 7.0%, and is particularly soft in the Southern Ontario region which is dependent on motor vehicle and parts exports. Overall wage growth remains sluggish at 3.4% from a year ago. 

Finally, inflation has remained contained thus far in 2025. Headline CPI inflation for April was 1.7% year-over-year, below last month's 2.3% and in-line with the Bank of Canada's inflation target of 1% to 3%. While Bank of Canada is seeing some softness in headline inflation, there is no major deterioration in economic activity with core inflation rising slightly. 

In the U.S., headline CPI inflation remains around 2.4%, while core inflation is around 2.8%. In our view, U.S. tariffs have not yet impacted U.S. goods prices, perhaps because companies had built inventories – and continue to do so even during the current 90-day pause. This should help alleviate pricing pressure even as we head to the back half of 2025. 

Some of this better data has been reflected in recent stock price movements. The TSX has managed to outperform the S&P 500 year-to-date, returning 8.7%. Notably the TSX Composite, Completion Index, and Small-cap Index are trading at all-time highs. 

After falling nearly 20% from the mid-February highs, the S&P 500 has since rebounded and recovered over 20%. 

In our view this reflects both solid economic and earnings data, as well as the U.S. administration walking back some of the higher tariff rates. 

As we head into the second half of 2025, we are of course watching a few key variables: 

We would expect both the Bank of Canada and the Federal Reserve to cut interest rates in the back half of the year as well. 

The Bank of Canada has remained on hold in June, but we believe two rate cuts are likely in the back half of the year. There is a possibility for Canada's central bank to perhaps only cut one more time in 2025 if core inflation proves to be persistent. 

The current fed funds rate of 4.25% - 4.5% remains well above inflation rates around 2.5% - 3.0%, and thus the Fed has some room to move lower. If the economy or labor market softens, the Fed is more likely to cut rates – thus far, we see 1 to 2 rate cuts in 2025 as likely.

Overall, economic data held up well in the first half of 2025, despite uncertainty around trade and tariffs. After a strong run in stock markets, we could see bouts of volatility emerge as investors digest news on tariffs as well as a U.S. tax bill. 

However, as we head into the back half of 2025, and into 2026, investors may have a better setup: Central banks may be cutting rates, and we should have more clarity on tariffs and the tax bill. There is a potential for corporate earnings growth to reaccelerate next year as well. 

In this environment, we believe bouts of volatility can be used as opportunity to add quality investments at better prices. We continue to favor diversification and broadening leadership as key investment themes. 

We recommend overweight positions in both U.S. large cap and mid cap stocks. From a sector perspective, we favor financials, healthcare. And within investment grade bonds, we see value in the 7 to 10 year maturity space, with yields on U.S. bonds still favorable around 4.5%.

Remember, for long term investors, strategies like dollar cost averaging to gradually and consistently add exposure to markets have historically been a strong approach to meeting long-term financial goals. I'll now pass it over to Julie to elaborate further on section 899.

Section 899 of the "One Big Beautiful Bill Act" is the U.S. tax bill that is currently with the U.S. Senate - and could soon become U.S. law. 

Thank you Mona. 

As of June 27, the originally-proposed section 899 was removed from the "One Big Beautiful Bill Act." This is welcome news for Canadians that own U.S. securities. The removal of section 899 signals no changes to the withholding tax structure on U.S. income-producing assets. 

If you have any questions, please reach out to your Edward Jones financial advisor or your trusted tax professional. 

Thank you.

Hello, everyone, and welcome to the first Market Compass of 2025. 

It has certainly been an eventful couple of months to start the year, but despite some volatility and uncertainty, markets have performed well with the TSX and the S&P 500 both up over 4% as of mid-February. 

Underneath the surface, we have seen a broadening of market leadership beyond U.S. mega-cap technology. We believe the positive market returns we've seen so far in 2025 reflect an economy that continues to remain resilient and is showing signs of momentum. The uncertainty around tariffs remains an overhang and could be a source of volatility, inflation and lower than expected economic growth. 

However, barring a recession or central bank rate hikes — neither of which we see ahead — we continue to see market pullbacks as opportunities to diversify, rebalance and add quality investments. 

Let’s first look at the Canadian stock market. The TSX is up over 4% on the year, being led by cyclical sectors such as technology, materials and industrials which do well when the Canadian economy is growing. 

Similarly, in the U.S., the S&P 500 is up about 4% as of Feb. 13, and sector leadership has broadened. The technology and consumer discretionary sectors have lagged thus far this year after being some of the strongest sectors in 2024, with some U.S. mega-cap tech names underperforming. We believe this theme of diversification and broad leadership will continue in the year ahead. 

In the bond market, yields have been trending down on tariff concerns and more aggressive bank of Canada easing. The Bank of Canada has reduced its policy rate by 2% from June 2024 compared to the Federal Reserve's 1% decrease. As a result, U.S. 10-year treasury rate is yielding over 1.30% above the Canada 10-year rate. 

U.S. treasury yields have come down from their highs but remain elevated versus recent history as inflation remains sticky and above the Federal Reserve's target of 2%. 

Given the uncertainty around inflation and tariffs, Canadians yields have moved lower due to the expectation of more bank of Canada rate cuts to support the economy. In the U.S., yields have moved higher, because the tariffs are seen as inflationary and the markets have priced in fewer Federal Reserve interest rate cuts. Higher yields generally mean lower bond prices, but for savers, long-term investors and those nearing retirement, elevated bond yields can be a good source of income. We continue to see opportunities in the U.S. investment-grade market to extend duration and invest in high-quality bonds and to take advantage of higher U.S. bond yields. 

After two years of double-digit returns in Canada and the U.S. stock markets, what is driving the continued positive returns this year? In our view, the fundamental backdrop remains supportive, which underpins this bull market. 

Corporate earnings continue to deliver: We see them growing by double digits this year as well, driven by contributions from both growth and value sectors, which should support stock market returns. 

The labour market has been an ongoing source of strength for the U.S. economy. Keep in mind that when households feel confident in their jobs and the job market broadly, they are more inclined to consume. 

The U.S. unemployment rate remains at 4%, well below the long-term average of 5.7%, and wage growth, while elevated at about 4%, continues to outpace the rate of inflation. This means employees are bringing home positive real wages, also good for households and consumers. 

I'll now pass things to Julie Petrera. 

Thank you, Mona. 

Perhaps the biggest source of uncertainty for markets, and the most significant risk to economic growth is the tariff and trade policy. An escalation in tariffs on one or more economies would not only weigh on consumer and market sentiment, but could also increase prices and put downward pressure on economic growth. 

The Bank of Canada expects a 2.5% reduction in GDP if the U.S. implements a 25% tariff on Canadian goods. This would likely lead to a mild recession in Canada. 

However, we do see some mitigating factors when it comes to tariffs and trade. We’ll highlight three today: 

1. First. The possibility of U.S. tariffs may be more targeted. Rather than across-the-board tariffs of 25% on all imported goods, The U.S. may take a more targeted approach as seen by the 10% tariff proposed on energy.
2. Next - The decline in the Canadian dollar. The Canadian dollar has seen a decline of 5% since October, dropping to a low of sixty eight and seven tenths of a cent due to tariff threats. If the 25% tariffs are imposed broadly, we could see the Canadian dollar drop further, which would help to offset some of the potential impact.
3. And finally, the potential of fiscal stimulus. The current Canadian government has previously alluded to the fact that stimulus could be provided to impacted sectors of the economy as well as consumers to help withstand the impacts of tariffs. 

So, while the Bank of Canada forecast of a 2.5% reduction in GDP may be in the realm of possibilities, it's also plausible that we don’t see the full impact due to these mitigating factors. 

Overall, after two years of solid gains in stock markets, and low volatility during this period, we expect to see moderation in returns and increased market volatility ahead. However, we continue to see positive economic and earnings growth. 

And while tariffs and trade remain uncertain, we don’t see them pushing the economy into a prolonged recession. Thus, we believe investors can use market pullbacks as opportunities to diversify, rebalance and add quality investments at better prices across stock and bond markets. 

In our view, diversification will be a key theme in the year ahead. By spreading your portfolio across a variety of asset classes, you can help avoid too much exposure to those that may be underperforming while potentially taking advantage of others that might be outperforming. 

If you are concerned about the impact of tariffs to your personal household expenses, or if you work in an industry that you worry may be impacted - connect with your Edward Jones Advisor to ensure you’ve accounted for price increases in your budget and that your emergency fund reflects any risk of a job disruption. 

Additionally, if the thought of market volatility keeps you up at night, speak to your advisor about reviewing your risk tolerance to ensure your investment strategy appropriately reflects your comfort with risk. An appropriately specified risk tolerance is one that is designed to balance your ability and willingness to take on risk while helping you earn a rate of return that high enough to meet all of your financial goals. And with that, I thank you, and we’ll see you here next time on the Market Compass.