Market momentum continues despite trade noise

Canada’s stock market logged a robust double-digit gain in the third quarter, outpaced most of its global developed-market peers. Market sentiment was helped by the Bank of Canada’s quarter-point rate cut, which brought its key policy rate to 2.50%, marking its first reduction since March. Expectations of additional cuts over the coming year helped market participants set aside concerns about sluggish economic growth. The rally was broad-based, with financials, energy stocks, and gold miners all experiencing robust gains. The strong showing helped the S&P/TSX Composite Index achieve a series of new all-time highs and boosted its year-to-date return through September 30 to more than 20%.

U.S. stocks were also strong during the quarter, ending on a high note despite some volatility over the period. Market sentiment was driven heavily by interest rates, as the U.S. Federal Reserve (Fed) announced its first rate cut of the year amid an increasingly dovish tone for the central bank. Corporate earnings strength also provided markets with confidence that the economic backdrop could support further stock gains. A wave of announced deals in the artificial intelligence (AI) space late in the quarter was also positive for stocks, with the rally widening beyond just a handful of mega-cap names to small-cap and value names. Within the broad-based S&P 500 Index, the information technology, communication services and consumer discretionary sectors notched the biggest gains, while the consumer staples and real estate sectors were the main laggards.

The broadly positive market sentiment extended to global equity markets, with most major broad-based indexes hitting all-time highs during the quarter. A favorable backdrop of positive global growth, falling interest rates across the developed markets, and a lack of pronounced negative news fueled a surge in investors’ appetite for risk. The U.S. market was a top performer, and emerging markets performed very well, with China registering an impressive gain. On the other hand, Europe—while positive in absolute terms—lagged following stellar returns in the first half of the year.

Global fixed-income markets posted positive returns as well, led by North American bonds as they benefited from the interest rate cuts by the Fed and the Bank of Canada. In contrast, bond yields were slightly higher across much of Europe amid worries about fiscal deficits and rising inflation stemming from U.S. tariff policy. Yields also rose in many Asia-Pacific bond markets—most notably in Japan, China, and Australia—as investors expressed similar concerns.

On a sector basis, high-yield corporate bonds were the leading performers, while sovereign government bonds lagged.

Given the uncertainty surrounding trade and the economy, along with ongoing geopolitical tensions, we encourage you to regularly consult with your investment counsellor to navigate this complex situation and explore optimal strategies for your portfolio.