Market Commentary – Q2 2025

The second quarter of 2025 had some interesting twists and turns!  I wanted to share some key details and observations.

While I would love to suggest this upswing will continue, and it might for a while, I refuse to bank on it.  Even if President Trump was not so volatile in his opinions/directions/policies, there are no shortage of things that can unexpected derail economic and market growth.

There remains no shortage of potential speed bumps that could show themselves.  President Trump’s trade battles continue, the conflicts in the Middle East and Ukraine remain active, and there is a stronger smell of geopolitical conflict in the air.  Thus, I remain convicted in our investment thesis… stay focused on the long term and invest in companies with strong market positions, who are leaders in their industries, who carry relatively little debt, and who consistently have strong balance sheets.

Even in the midst of great volatility, investment management is most often characterized by small adjustments.  It is kind of like driving on a highway… it is always better to make small, steady, adjustments than to make snappy, big adjustments that may put you in the ditch!

Canada and the United States spent much of the quarter in a trade war, with new negotiations happening on a daily basis. The U.S. threatened the “revenge tax”, but in a recent move abandoned ship.  Canada has now dropped the Digital Services Tax that threatened huge levies on major U.S. tech firms.  This was seen as a bargaining chip for Canada and part of the negotiation process— expect negotiations to remain ongoing in 2025.  Although trade wars persisted, markets told a different story. 

Canada’s main stock market, the S&P TSX, gained a healthy 7.8% in the second quarter, with communications and financials leading the way. The Bank of Canada left its overnight lending rate alone which, in turn, caused banks to pause from decreasing their Prime rates.   Economic and inflation numbers will be watched closely, given there was no rate cut to Canadian interest rates in July.  Going forward, rate cuts may be likely if U.S. trade policy puts pressure on the Canadian economy, but uncertainty is the only constant at this time.  

On the political stage, the people of Canada spoke loudly, and elected a new Prime Minister in Mark Carney.  This was one of the biggest political comebacks in Canadian history, with the Carney Liberals taking a minority government.  Carney and company are known to be more fiscally prudent and pro-business than his predecessor, with Canada on the verge of becoming an economic powerhouse. Bill C-5, the “One Canadian Economy Act”, aims to streamline federal review processes for major projects, expedite project approvals, and remove barriers to internal trade and labour mobility. 

Major economic projects include the Stellantis LG Energy Solution in Ontario, the WoodFibre LNG project in British Columbia, and the Alto Project, a high-speed rail line between Toronto and Quebec City.  The Liquified Natural Gas export terminal in Kitimat, British Columbia also sent its first load of LNG via the GasLog Glasglow tanker.

This marks a major milestone as Canada looks to ship more LNG to Asian markets and diversify our trading partners. It takes roughly 10 days for a ship to sail from Kitimat to North Asia, compared with 20 days from the U.S. Gulf Coast, via the Panama Canal. 

Our friendly neighbors to the south fared significantly better in the second quarter. The S&P 500 was up a healthy 10.1% in Q2, a generous turnaround from the first quarter. Gains were fueled by technology- with Palantir Technologies, Meta, and Microsoft leading the way. The bounce back has come in the midst of a protectionist U.S. trade policy, with tariffs the latest economic weapon of choice.  The U.S. dollar is now at its lowest level since February 2022, and this may suggest that further interest rate cuts are on the way.  The Federal Reserve is still taking a cautious approach to rate cuts as inflation has ticked up to rear its ugly head. 

Operation Midnight Hammer was carried out with the U.S. dropping bombs on Iran, showcasing their military might.  This was in response to Iran’s nuclear enrichment ambitions, with the strike crippling major nuclear infrastructure. In a defiant move, Iran’s parliament voted to withdraw from the Nuclear Non-Proliferation Treaty.  The price of oil remains down year-to-date, and no upward price pressure has yet resulted from the recent U.S. military action.  Prices have in fact decreased since the military operation and are currently hovering around $65 USD/barrel.  

Although stock markets were down in the first quarter, they roared back for a fruitful second quarter.  This again proves that markets are resilient, and “time in the markets” creates wealth. 

For now, enjoy the beautiful summer weather in the Lower Mainland and please don’t hesitate to reach out to me or Diana is there is something you may need.

Regards,

Cory Hill

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