^InsightsMonthly Market Wrap – July 2025

July delivered a mix of steady gains and subtle warning signs. North American markets pushed higher on strong earnings and easing inflation pressures, even as cracks began to show in the U.S. labour market and global growth cooled. Rising yields, firmer oil, and a resurgent U.S. dollar kept investors alert heading into the second half of summer.

Equities

Performance Table:

Global equity markets delivered mixed returns in July.

In the U.S., the S&P 500 advanced 2.17%, with strength concentrated in the technology and industrial sectors, while healthcare continued to lag. The NASDAQ Composite outperformed with a 3.70% gain, buoyed by strong earnings from mega-cap tech.

Canadian equities rose for a third consecutive month, with the S&P/TSX up 1.7% (price return) in local terms. Gains were broad-based across communication services, energy, and technology, partially offset by weakness in health care.

International developed markets (MSCI EAFE Growth) fell 3.03% in USD terms, as currency weakness in the euro and yen weighed on returns despite modest underlying equity performance. Emerging markets posted modest gains, supported by a softer U.S. dollar and resilient commodity demand.

Overall, optimism remains evident in the stock market, as investors overlook the sheer magnitude of ongoing economic and geopolitical uncertainty—reflected in the NBI sentiment indicator reaching its highest level since December 2024.

Fixed Income & Credit

Bond markets were under pressure again in July as both inflation and job creation surprised to the upside, pushing yields higher in Canada and the U.S. In the U.S., Treasuries ended modestly lower after the Federal Reserve signaled it remains cautious on inflation despite signs of slower growth.

That said, the weakening U.S. economy may start to open the door for rate cuts over the coming quarters. While stagflation remains a risk, we continue to believe the recent tariff-related price pressures will be a one-time shock rather than a sustained inflation driver. This backdrop aligns with our view that the Fed should begin moving its policy rate toward neutral in the months ahead.

Commodities & Currency

Oil prices climbed for a second consecutive month, supported by steady global demand and geopolitical risks tied to U.S. tariff threats on countries importing Russian oil.

The U.S. dollar rebounded in July, gaining more than 3% on the DXY index, supported by firm U.S. economic data and a still-restrictive Fed. The Canadian dollar weakened 1.8% against the greenback, retracing part of its mid-year rally. While recent USD strength may persist in the short term, we expect it to find a floor as rate expectations shift.

Economic Overview

United States

The U.S. economy is showing clearer signs of slowing after a resilient first half. July’s nonfarm payrolls came in below 100,000, undershooting expectations and marking one of the weakest job gains in the past two years. The unemployment rate has begun to edge higher, while the job openings-to-unemployed ratio has slipped closer to parity, indicating a labour market moving toward balance. Wage growth, while still positive, is no longer accelerating.

Real GDP expanded at an annualized 3.0% in the second quarter, but this headline figure masks a softer underlying trend. Average growth over the first half of the year was just 1.25%, a full percentage point below 2024’s pace. Economists are watching “final sales to private domestic purchasers”—a measure that strips out trade and inventory swings—which grew only 1.2% in Q2, the slowest since late 2022. This deceleration reflects cooler consumer spending and more cautious corporate investment as businesses navigate the Trump administration’s unpredictable trade policy shifts.

Inflation remains above the Fed’s 2% target but has surprised to the downside relative to earlier forecasts. Importantly, the inflationary impact of recent tariffs appears to be dissipating more quickly than expected, with the CITI Inflation Surprise Index at its lowest level in nearly a decade. Housing inflation—now a more dominant driver than goods prices—continues to slow, easing some pressure on the Fed. Combined, these developments may give policymakers the scope to begin moving toward a neutral policy stance later this year, though they remain cautious about declaring victory on inflation too soon.

Canada

Canada’s labour market lost momentum in July, erasing much of the robust job growth seen earlier in the year. Canadian employment fell 40.8K in July, well below the consensus calling for a 10K increase. The unemployment rate edged up to 6.9%. Wage growth has also cooled, rising 3.3% year-over-year, down from earlier peaks.

Sector performance was uneven: goods-producing industries saw modest hiring, while service sectors, particularly wholesale and retail trade, posted losses. Regionally, job declines were led by Ontario and Alberta, partially offset by gains in Quebec. The softer labour data comes against a backdrop of subdued GDP growth and contained inflation, reinforcing expectations that the Bank of Canada will resume its rate-cutting cycle later this year. The central bank is expected to lower its policy rate toward the 2.25% lower bound of its neutral range, aiming to support domestic demand while maintaining currency stability in the face of a firmer U.S. dollar.