October 2025 – Investment risk appetite is still strong

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

The S&P/TSX Composite Index edged up 1.0% in October for its sixth straight month of gains as the rising gold price continued to contribute to the market’s performance. 

Investors showed resilience despite deteriorating economic data. Canada’s gross domestic product fell 0.3% in August, versus consensus expectations of zero growth. Even so, preliminary estimates suggest the economy may have avoided a recession in the third quarter. 

The bond market also ended in positive territory, with the FTSE Canada Universe Index returning 0.7%. The Bank of Canada’s decision to cut its key rate earlier in the month contributed to the return, given the inverse relationship between bond yields and prices.

In the United States, the S&P 500 Index returned 3.1% in Canadian dollars and 2.3% in local currency. It too saw a sixth consecutive month of increases. On the currency front, the loonie continued to fall against the greenback, which supported Canadian-dollar returns. 

The quarterly results announced by a number of large companies dominated the headlines. Amazon, for example, came in well ahead of expectations, illustrating the strength of the mega-cap segment. A large majority of the S&P 500 companies that reported earnings beat analysts’ forecasts.   

Although the Federal Reserve lowered its key interest rate by another 25 basis points, Chair Jerome Powell hinted it could be the last cut in 2025. This slightly hawkish signal caused investors to lower their expectations for another rate cut this year. Powell’s cautious tone dampened market enthusiasm at the end of October, although it was a generally favourable month for U.S. equities. 

International developed markets returned 1.9% in Canadian dollars and 3.4% in local currencies.  

In Europe, the markets ended the month moderately higher. Earnings announcements were mixed, but the mood remained upbeat on an inflation report perceived as reassuring. It confirmed that price pressures were still contained, supporting the European Central Bank’s decision to leave its interest rates unchanged. 

In Japan, inflation data covering the Tokyo region showed that core inflation had accelerated, remaining above the 2% target. Even so, the Bank of Japan decided not to raise rates in October, contrary to the expectations of a number of economists. Japanese equities stood out among developed markets as the weak yen also favoured exporters. 

Emerging markets recorded a strong advance in October, returning 4.9% in Canadian dollars and 4.6% in local currencies.  

In China, the PMI contracted for the seventh straight month as manufacturing activity fell once again on a decrease in new export orders. In contrast, the Indian markets ended higher, recording their best monthly return since March. 

Positive trade developments between the U.S. and China were especially supportive for South Korea and Taiwan, boosting their semiconductor sectors, which are closely tied to artificial intelligence. 

Emerging market performance has been supported this year by the weaker U.S. dollar, as well as attractive valuations and a resurgence of interest from investors seeking diversification. In fact, the MSCI Emerging Markets Index has one of the best year-to-date performances.