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The summer rally stayed hot, as tariff talk turned cold

The third quarter of 2025 delivered broad gains across virtually all asset classes, as markets shrugged off caution and rallied strongly. Investors largely ignored persistent trade-war headlines, treating tariff threats as background noise rather than fundamental risks. Instead, sentiment was buoyed by resilient corporate earnings and the growing belief that interest rates had peaked. A U.S. Federal Reserve (the Fed) rate cut late in the quarter reinforced this optimism, sending both stocks and bonds higher, despite mixed economic data.

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Canadian equities led the global charge

The S&P/TSX Composite Index surged nearly 12% during Q3, reaching a new milestone above 30,000 points. Resource and cyclical stocks powered this advance: the materials sector jumped over 37%, as gold prices hit a record high near US$3,859 per ounce, and the energy sector climbed more than 11%, thanks to steady oil prices (with the West Texas Intermediate price averaging US$65 per barrel). Financial stocks also rose nearly 10%, fuelled by stronger-than-expected bank profits. This strong market performance came in stark contrast to Canada’s soft economic indicators (unemployment rose to 7.1% and GDP contracted in Q2), but investors focused on robust company fundamentals and potential policy support instead of these headwinds.

U.S. and international markets also posted solid gains

South of the border, the S&P 500 Index rose about 8% (in U.S. dollars), driven by big jumps in the technology and communications services sectors, while defensive sectors (like consumer staples) lagged. Smaller U.S. companies rallied too, with the Russell 2000 Index up over 12%, benefiting from lower borrowing costs after the Fed’s first rate cut this year.

Overseas, emerging markets were standout performers: the MSCI Emerging Markets Index climbed roughly 10% (in U.S. dollar terms), led by strength in Asian markets, such as China and Thailand. Developed-market stocks in Europe and Asia also notched positive returns, though more modestly.

Hints of slower growth and cooler job markets prompted central banks to turn toward rate cuts. In September, the Fed’s rate cut helped push government bond yields down and lift bond prices. Broad Canadian bond indices gained around 1.5% for the quarter. Importantly, corporate bonds outperformed government bonds, which was a sign of investor confidence in corporate balance sheets. Credit spreads tightened to multi-decade lows, as companies continued to report solid earnings. Even high-yield bonds advanced, with investors willing to accept lower risk premiums in exchange for higher returns. The Canadian dollar, meanwhile, ended the quarter near US$0.72, slightly down but stable, which modestly boosted Canadian investors’ returns on U.S. assets.

Q3 2025 was characterized by a delicate balance between lingering uncertainties and strong underlying fundamentals, which tilted in favor of equity investors. Markets powered higher on the back of healthy corporate profits and easing interest-rate expectations, illustrating that prudent diversification and a focus on long-term fundamentals paid off, despite the noisy backdrop of geopolitical and economic concerns.

Find out more in our 2025 Third Quarter Market Review and stay up to date on the latest market trends with our weekly market commentary.

 

This commentary is published by IG Wealth Management. It represents the views of our Portfolio Managers and is provided as a general source of information. It is not intended to provide investment advice or as an endorsement of any investment. Some of the securities mentioned may be owned by IG Wealth Management or its mutual funds, or by portfolios managed by our external advisors. Every effort has been made to ensure that the material contained in the commentary is accurate at the time of publication, however, IG Wealth Management cannot guarantee the accuracy or the completeness of such material and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. Investment products and services are offered through IG Wealth Management Inc. (in Québec, a firm in financial planning), a member of the Canadian Investor Protection Fund.

This commentary may contain forward-looking information which reflects our or third-party current expectations or forecasts of future events. The forward-looking information contained herein is current as of October 1, 2025, and is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information.

Trademarks, including IG Wealth Management and IG Private Wealth Management, are owned by IGM Financial Inc. and licensed to subsidiary corporations.

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