^InsightsMonthly Market Wrap – August 2025

August capped off a fourth straight month of equity gains, driven by resilient earnings and growing expectations for rate cuts. While North American markets rallied broadly, falling oil prices and renewed weakness in manufacturing highlighted the challenges facing the global economy. With September historically a volatile month, investors are entering the fall balancing optimism about looser policy with caution over softening growth.

Equities

Equities advanced globally in August, led by Canada and international developed markets.

Performance Snapshot

• U.S. Equities: The S&P 500 rose 1.91%, while small-caps surged (Russell 2000 up 7.0%) as investors rotated into cyclical, interest-rate-sensitive sectors on expectations of Fed easing. Technology gains were more muted, with the NASDAQ 100 up 2.0%.
• Canada: The S&P/TSX delivered a strong 4.79% return, led by materials (+15.9%) and technology (+6.2%). Small caps outperformed with a 9.3% gain.
• International: The MSCI AWCI climbed 2.36%, outperforming U.S. large caps, while emerging markets lagged at +1.5%, dragged down by weakness in India amid trade frictions with the U.S.

Fixed Income & Credit

Canadian bonds were flat in August, with short- and mid-term gains offsetting losses on the long end. In contrast, U.S. Treasuries posted gains after Fed Chair Powell’s Jackson Hole speech signaled openness to resuming rate cuts.

The weakening growth backdrop is making it harder for the Fed to justify holding rates at restrictive levels. Market-implied odds of a September cut climbed above 80%, which would mark the Fed’s first since late 2024. While stagflation risks remain, the inflationary shock from tariffs has proven modest, suggesting room for the Fed to pivot toward neutral.

Commodities & Currency

Oil prices plunged -8.5% in August as OPEC+ ended production cuts earlier than expected, while global demand softened.

Gold rallied +4.4%, benefiting from lower yields and renewed safe-haven demand.
The U.S. dollar resumed its decline (DXY -2.2%), weighed by dovish Fed expectations. The Canadian dollar strengthened 0.8% against the greenback.

Economic Overview

United States

The U.S. economy showed further signs of strain in August. Manufacturing contracted for the sixth straight month, with the ISM PMI stuck in contraction at 48.7. Businesses cited tariffs, weaker exports, and soft capex, with some firms describing conditions as “worse than the Great Recession”. Factory construction spending fell 6.7% year-over-year, underscoring the drag on industrial activity.

The labour market is now flashing clearer warning signals. The latest nonfarm payrolls report (September 4) showed only 22,000 jobs created, marking a sharp deceleration from earlier in the year and well below consensus expectations. While not yet pointing to outright collapse, this pace reflects a labour market losing momentum and reinforces the case for Fed easing. Inflation progress remains stalled near 3%, leaving policymakers under pressure to balance cooling demand with sticky price pressures.

Canada

Canada’s labour market deteriorated sharply. Employment fell by 66,000 in August, pushing the unemployment rate up to 7.1%, its highest since 2021. Losses were broad-based: part-time jobs plunged -60K, while full-time fell by -6K. Professional services, transportation, manufacturing, and education were hardest hit, while construction offered a partial offset.

Bottom Line

Equity markets continued to climb in August, but weak manufacturing and labour market data in North America show the economy is losing steam. With the Fed and BoC both set to pivot toward rate cuts, markets may remain supported near-term, though September’s historical volatility looms large.

We expect September and the remainder of the year to bring elevated volatility, as slowing growth, political pressure on central banks, and the aftermath of tariffs continue to ripple through global markets. Against this backdrop, our key focus remains on disciplined asset allocation and capital preservation. While euphoric market sentiment pushes equities higher, we remain cautious and patient, filtering out short-term noise to ensure portfolios stay resilient and aligned with long-term objectives.