Q2 2025 in review

The downturn proved short-lived, however, as the Trump administration enacted a 90-day pause on the initial tariffs within a week. Stocks surged in response, as investors concluded the earlier announcement was largely a negotiating tactic. Also providing support for equities were interest rate cuts announced by the Bank of Canada during the first quarter. The rally persisted through the end of June, leading to a series of all-time highs for the S&P/TSX Index. Gold miners and financial stocks each performed well, offsetting a weaker showing for energy.

Similarly, the U.S. equity market rebounded in May and June, resulting in a strong gain for the quarter. Stocks initially sank as proposed new import tariffs fueled recession and inflation fears. Resilient earnings, better-than-expected jobs data, and stable inflation readings added fuel to the rebound. Despite uncertainty around the fate of a proposed tax bill and the approaching August deadline for new tariffs, a trade agreement between the United States and China, ceasefire deal between Iran and Israel, and Canada’s decision to drop its digital services tax helped the S&P 500 Index close the quarter at a record high. Within the broad-based S&P 500 Index, the information technology and communication services sectors—which together account for more than 40% of the index—led the way, with growth stocks trouncing value stocks. The industrials and consumer discretionary sectors also stood out, while healthcare and energy stocks lagged.

Global equity indexes also surged during the quarter, with most broad-based indexes hitting all-time highs, as the 90-day tariff pause raised hopes that U.S. trade policy would ultimately be less restrictive than first thought. Stocks soon recovered all their initial losses as data related to global growth, inflation, and corporate earnings exhibited stability despite the shifting policy backdrop. European stocks and the emerging markets led the way in the rally.

Global bond markets were generally stronger during the second quarter, though North American markets were somewhat mixed. The enactment of wide-ranging tariffs by the United States early in the quarter led to reduced global growth expectations. Although the new tariff regime was paused shortly thereafter, concerns about a potentially escalating global trade war and its impact on economic growth affected investor demand. Concerns about inflation and the U.S. government’s budget deficit also contributed to the muted returns. There was little differentiation in sector performance, with sovereign government bonds and corporate bonds posting similar returns. Concerns about inflation and the U.S. government’s budget deficit also contributed to the muted returns.