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Weekly market wrap

Published July 25, 2025
 Two people looking at paperwork and iPad

Another Day, Another High – Too Far, Too Fast?

Key takeaways

  • Canadian and U.S. stocks keep hitting fresh highs, supported by trade optimism and solid corporate earnings. New trade deals signal reduced uncertainty ahead of the August 1 deadline, even though the negotiations between the U.S. and Canada are ongoing and may extend beyond that point.
  • A packed week of earnings, BoC and Fed policy-rate decisions, and economic data could shake that calm, but the prevailing trend is upward.
  • Meme stocks and speculative froth are reappearing, but broader sentiment remains below euphoric levels, suggesting room before true overheating. With valuations elevated, earnings will likely have to do the heavy lifting from now on.
  • We recommend avoiding the temptation to chase speculative investments. Favour quality and diversification while maintaining a slight overweight on equities. We think U.S. financials, health care, and consumer discretionary look compelling, while investment-grade bonds offer solid yield opportunities.

Summer temperatures are heating up, and so is the stock market. Investors have little to complain about so far this season, with the TSX climbing steadily and not registering a single move greater than 1% in either direction for three months. This stretch of low volatility and consistent gains, including 11 S&P 500 and TSX new highs in the past 30 days, has been supported by a backdrop of easing uncertainty and growing clarity across key policy fronts1

But with a critical week ahead featuring big-tech earnings, a key trade deadline, Federal Reserve and Bank of Canada meetings, and the U.S. monthly jobs report, the summer's calm may be tested. We think complacency is rising and so is the risk of near-term volatility, but solid fundamentals help support a cautiously optimistic outlook for the rest of the year.

Trade developments: From risk to relief

Tariffs and trade have been the biggest source of uncertainty this year, triggering a near-20% decline in stocks in April. But this fog is gradually clearing as more trade deals are announced ahead the U.S. government's August 1 deadline. Last week's deal with Japan, for example, reduced threatened tariffs from 25% to 15% and included a $550 billion U.S. investment commitment. The deal likely provides a framework for other major countries as negotiations kick into high gear. 

Deals have now been reached with the U.K., Vietnam, Indonesia, Japan, and partially with China, while key partners like the EU, Canada, South Korea, and India remain at the table. Tariffs rates are moving higher from last year, but the worst-case scenarios appear to have been avoided, and the increased clarity can help companies plan and resume investment spending1. For Canada, reports suggest that the August 1 deadlines may be missed as the government is trying to secure the best possible deal. In this case, tariffs are due to rise to 35%, but that would only apply to non-USMCA compliant goods, which are estimated to be around 20% of Canada exports to the U.S. In the meantime, the government is pledging support to sectors that are harder hit, like steel producers and auto manufacturers.
 

 A graph of the TOPIX index
Source: Bloomberg, Edward Jones

The economy: Goldilocks conditions - for now 

While growth slowed notably in the first half of the year, recent economic data has pushed back against the stagflation narrative in both the U.S. and Canada. U.S. initial jobless claims declined, pointing to stable labour-market conditions, and last month's jobs employment report in Canada showed the largest jobs gain in six months. Retail sales rose more than expected in June in the U.S., while in Canada May's decline is expected to be followed by a solid rebound in June. Inflation, while still a concern, is contained for now, as the expected rise in consumer and producer goods prices has been restrained by a decline in services (goods carry a 25% weight in the inflation basket vs. 75% for services)1.

We suspect this series of market-friendly data may be disrupted in the months ahead as higher tariffs likely impact growth. However, the recent passage of a new U.S. tax bill has brought some clarity to fiscal policy. We expect modest fiscal stimulus next year, with tax cuts, increased business investment, and deregulation supporting a pickup in activity.  The upshot, in our view, is that while stagflation concerns may rise as the summer ends, the economy appears well-positioned to weather volatility as headwinds likely ease in 2026.
 

Source: Bloomberg, Edward Jones

The Fed: In the eye of the storm as pressures mount to lower rates 

The White House has ramped up pressure on the Fed to lower interest rates, pointing to other central banks that have cut rates more aggressively. For context, the BoC has cut rates by 2.25%, while the European Central Bank just paused its rate-cutting campaign after having lowered rates by 2% over the past year vs. the Fed's 1% move1. With Jerome Powell's terms ending next year and the president eager to announce his replacement soon, concerns about Fed independence are on the rise. 

We would note that there are several checks and balances in place to allow the Fed to make decisions based on economic grounds rather than political pressure. First, the president’s nominee would need to be confirmed by the Senate, and a polarizing or unqualified candidate could be rejected, as it has happened with other nominations in the past. Second, while the Fed Chair is an influential voice, decisions require a majority vote among the 12 voting members of the FOMC. 

Given the resilient economic data and upside risks to inflation, both the BoC and the Fed are likely to hold rates steady again when they meet this week. But if clarity on the tariffs improves after August 1, a U.S. September cut is possible, with Powell potentially hinting at that at the Fed's annual Jackson Hole meeting on August 21-23. We expect one to two cuts in the second half of 2025 in the U.S. and Canada, followed by additional easing in 2026 as the Fed moves slowly toward a neutral rate (around 3%-3.5%). The BoC is already closer to the end of its easing cycle, as currently policy is in the middle of its neutral range (2.25% - 3.25%). From a market perspective, a measured and gradual easing cycle can still lead to good market outcomes if the economy holds up, as it did in the mid-'90s1.

 Five years of interest rate changes for the BOC, ECB and Fed.
Source: Bloomberg, Edward Jones

Earnings: Likely to do the heavy lifting from now on 

Valuations have had their run over the past three months, with the S&P 500 forward price-to-earnings ratio rising to over 22 times and TSX valuations rising above 16 times, the highest since 20212. Now it is the earnings' turn to drive further gains. This week will be the busiest of this earnings season, with almost 40% of the S&P 500 companies reporting results, including many among the Magnificent 7 (Microsoft, Meta, Apple, Amazon)1

So far, the second-quarter earnings season is off to a good start. Of the companies that have reported, 83% are beating estimates, exceeding expectations by 7%. As a result, the expected S&P 500 earnings growth rate for the quarter has been revised up to 5.5%, from 4% just a few weeks ago. Banks have been a bright spot, underscoring consumer health and credit stability2.

The Magnificent 7 companies are expected to remain top contributors. Earnings from the group are projected to grow 14% vs. the 3% expected for the S&P 500's remaining 493 companies2. Strong artificial intelligence (AI) demand remains a key driver, while the weaker dollar is providing an additional tailwind for earnings. With roughly 40% of S&P 500 revenues derived from international markets, currency-translation effects and increased competitiveness for U.S. exporters are likely to boost profits. Technology and industrials are two sectors that potentially stand to benefit the most given their high foreign revenue exposure2

 Percentage of S&P 500 companies scheduled to report earnings this week.
Source: Bloomberg, Edward Jones

Risks and complacency: A word of caution 

As it often happens when risks begin to fade, complacency starts to emerge. Meme-stock mania appears to be making a comeback with some retail traders reigniting interest in heavily shorted stocks, driving big price swings that are often disconnected from fundamentals and can reverse violently. This behavior could be a sign of froth. However, a broader measure of investor sentiment based on the AAII survey (American Association of Individual Investors) indicates that we appear to be still far from the euphoria that tends to show up at market peaks1

 Stocks with high short interest are experiencing a renewed momentum surge.
Source: Bloomberg, Edward Jones

Positioning: Stay opportunistic, focus on quality 

Record highs typically confirm strength, in our view, not signal imminent reversals. And market internals help support this notion. Equities are outperforming bonds, cyclical stocks are outperforming defensives, high-yield spreads are tight, and market-based inflation expectations appear to point to stable inflation over the longer term. 

Still, any deviation from the expected path, whether in trade talks, earnings or Fed decisions, could stir volatility. Seasonality also cautions against overconfidence, as late summer and early fall tend to bring more market turbulence. A run-of-the-mill pullback or correction is inevitable, though difficult to time. We think investors will be best served by avoiding the temptation to chase speculative investments and by doubling down on appropriate diversification across asset classes, styles and sectors. We recommend slightly overweighting equities, and we see opportunities in U.S. financials, health care and consumer discretionary. For those seeking income, we think long-term investment-grade bonds offer compelling value relative to recent history.

Bottom line: Volatility remains a risk and uncertainty hasn’t vanished, but greater clarity appears to be emerging. The prevailing trend is upward, and tactical pullbacks should be viewed as buying opportunities, in our view, especially with U.S. rate cuts and fiscal support expected next year.

Angelo Kourkafas, CFA
Investment Strategist

Sources: 1. Bloomberg, 2. FactSet

Weekly market stats

Weekly market stats
INDEXCLOSEWEEKYTD
TSX27,4940.7%11.2%
S&P 500 Index6,3891.5%8.6%
MSCI EAFE2,7152.8%20.0%
Canada Investment Grade Bonds 0.2%-0.4%
10-yr GoC Yield3.49%-0.1%0.2%
Oil ($/bbl)$65.04-1.5%-9.3%
Canadian/USD Exchange$0.730.1%5.0%

Source: FactSet, 7/25/2025. Bonds represented by the Bloomberg Canada Aggregate Bond Index. Past performance does not guarantee future results. *4-day performance ending on Thursday.

The Week Ahead

Important economic events releases this week include Bank of Canada and Federal Reserve interest rate decisions, monthly GDP data for Canada, and US payrolls, PCE inflation and Q2 GDP estimates.

Angelo Kourkafas

Angelo Kourkafas is responsible for analyzing market conditions, assessing economic trends and developing portfolio strategies and recommendations that help investors work toward their long-term financial goals.

He is a contributor to Edward Jones Market Insights and has been featured in The Wall Street Journal, CNBC, FORTUNE magazine, Marketwatch, U.S. News & World Report, The Observer and the Financial Post.

Angelo graduated magna cum laude with a bachelor’s degree in business administration from Athens University of Economics and Business in Greece and received an MBA with concentrations in finance and investments from Minnesota State University.

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Important information :

The Weekly Market Update is published every Friday, after market close. 

This is for informational purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation. While the information is believed to be accurate, it is not guaranteed and is subject to change without notice.

Investors should understand the risks involved of owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates and investors can lose some or all of their principal.

Past performance does not guarantee future results.

Market indexes are unmanaged and cannot be invested into directly and are not meant to depict an actual investment.

Diversification does not guarantee a profit or protect against loss.

Systematic investing does not guarantee a profit or protect against loss. Investors should consider their willingness to keep investing when share prices are declining.

Dividends may be increased, decreased or eliminated at any time without notice.

Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.

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.

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