September 2025 – Markets notch solid gains despite political uncertainty

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

The S&P/TSX Composite Index rose to an all-time high in September with a 5.4% gain. The market was supported by strength in the technology sector and in gold stocks, driven by the rising gold price, which surged more than 10% on the month. 

The Bank of Canada lowered its key interest rate by 25 basis points to 2.50% on September 17. The decision was due to August’s inflation rate of 1.9%, which was more moderate than expected, and the weaker economy. On September 26, the Canadian dollar reached a four-month low against the greenback, although it was still up relative to January 2025.  

On the trade front, the announcement of new U.S. tariffs on softwood lumber and some furniture revived bilateral tensions, although their direct impact remained limited. As for bonds, the FTSE Canada Universe Index was up 1.9% on lower interest rates. 

In the United States, the S&P 500 Index rose 3.7% in local currency and 5.0% in Canadian dollars. The S&P 500 recorded its fifth consecutive positive month while the Nasdaq posted its sixth monthly gain, demonstrating the resilience of technology stocks. 

The Fed lowered its key interest rate by 25 basis points in September, the first cut in nine months, boosting hopes of a dovish pivot. Even so, the threat of a government shutdown as early as October 1 fuelled uncertainty because it would delay the release of economic data such as the jobs report, which could complicate the central bank’s task. At month-end, the 10-year Treasury bond yield stood at 4.15%, versus 4.23% the previous month. 

International developed market equities rose 1.8% in local currencies and 3.3% in Canadian dollars.  

As for Europe, a surprising uptick in inflation was recorded in Germany, confirming persistent pressures despite the end of the ECB’s tightening cycle. That being said, European equities, as measured by the STOXX 600, posted a third consecutive month of positive returns, propelled by the industrials and health care sectors. British equities, as measured by the FTSE 100, also hit a record high thanks to a weaker pound, which benefitted multinationals. 

In Japan, the yen strengthened ahead of a possible October rate hike by the Bank of Japan. A trade deal with Washington offered limited support, as new U.S. tariff measures continued to weigh on the outlook. 

Emerging markets rallied strongly in September, advancing 7.1% in local currencies and 8.6% in Canadian dollars. The outperformance was due to the greenback’s weakness since the start of the year, favourable capital flows and the strength of some commodity-related markets.

In China, the manufacturing PMI came in at 49.8, marking its sixth month in contraction territory. Despite this weakness, expectations of a new stimulus package buoyed investor sentiment. Other emerging markets, notably in Latin America and South Asia, benefitted from a strong performance by resources and renewed interest from foreign investors. In India, markets continued to rise, supported by inflows and an improving economic outlook. 

As a result, in September the MSCI Emerging Markets Index was among the best-performing asset classes globally.