August 2025 - Solid results despite signs of economic slowdown

Sources: Bank of Canada, Bloomberg Finance L.P.

The S&P/TSX Composite Index posted a solid 5% gain in August, making it one of the best- performing markets during the month. The advance was driven by the financials and energy sectors. Several large Canadian banks, including TD and CIBC, reported earnings that exceeded expectations, reassuring investors about the strength of the banking sector. The Canadian market also benefitted from a more favourable global environment for commodities, although oil prices were down during the month. At the same time, concerns about trade relations between Canada and the United States hovered in the background, particularly after the U.S. administration announced new 35% tariffs, effective August 1, on some Canadian exports not exempt under  the Canada-United States-Mexico Agreement. Even though the measures covered only a limited share of exports, they revived worries about U.S. trade policy. The Canadian economy contracted significantly in the second quarter of 2025 amid a drop in exports caused by U.S. tariffs and continued weakness in business investment, raising new concerns about recession risks. 

As for the bond market, the FTSE Canada Universe Bond Index advanced 0.4% in August. Its monthly return reflects a degree of stability in the bond market in the absence of major changes to the Bank of Canada’s monetary policy. 

In the United States, the S&P 500 Index rose 2% in U.S. dollars and 1.3% in Canadian dollars in August. Although modest, the return reflects persistent positive sentiment in the markets, supported by the earnings of big tech and expectations of a slowdown in monetary tightening. The Jackson Hole symposium was key: U.S. Federal Reserve Chair Jerome Powell hinted that a first rate cut was possible as early as September, while insisting on the need to proceed cautiously. His comments fuelled investor optimism, causing bond yields to fall and stocks to rise. Even so, the momentum was hampered by growing uncertainty about the Federal Reserve’s independence and doubts about the neutrality of its governance in the U.S. electoral context.

As measured by the MSCI EAFE Index, international developed market equities rose 2.1% in local currencies but 3.6% in Canadian dollars, partially because of the euro’s strength against the loonie during the month. In Europe, manufacturing activity returned to positive territory in August. The Manufacturing PMI, the index that reflects the health of the manufacturing sector by surveying purchasing managers, rose in the euro zone for the first time since the beginning of 2022. The Manufacturing PMI crossed the 50-point mark – the tipping point between manufacturing expansion and contraction – rising to 50.7 and indicating a positive outlook for economic growth. The upturn was due especially to improved production in the industrials sector. At the same time, European bank stocks, already up more than 40% since the start of the year, continued to attract investor attention at the end of August.

The outlook was more mixed in Japan, where manufacturing activity shrank. The Manufacturing PMI fell to 49.7, indicating that the economy was still under pressure. 

Emerging markets were up 1.6% in local currencies and 0.8% in Canadian dollars. China reported mixed economic data: Oil imports rebounded, suggesting a one-off increase in demand, but the Manufacturing PMI contracted for the fifth straight month, falling to 49.4. India’s stock markets ended the month lower amid weakness in the financials and energy sectors, although auto stocks held up better.