Market and economic commentary
August 2025
Canadian stocks led markets higher in August despite a weakening domestic economy, with focus now shifting to diverging central bank policies as the US Fed signals a rate cut.
Equity markets continued their upward trajectory in August, though US equities saw some mild weakness towards the end of the month as growth stocks took a breather. Softening unemployment data led markets to anticipate a rate cut at the next Federal Reserve meeting. This expectation kept bond markets subdued, with most ending the month relatively flat.
All Compass Portfolios and ATBIS Pools (the Funds)1 saw positive performance over the month, with Canadian markets serving as the primary driver of returns. Up-to-date performance data for the Funds can be found here.
Below are index total returns in Canadian dollar (CAD) terms for August:
| Index | August 2025 |
|---|---|
| S&P/TSX Composite Index | 5.0% |
| S&P 500 Index | 1.2% |
| MSCI EAFE Index | 3.4% |
| FTSE Canada Universe Bond Index | 0.4% |
Source: Bloomberg, FTSE Russell
Economy
August further confirmed a divergence between the US and Canadian economies. Canada’s GDP contracted by 1.6% on an annualized basis in the second quarter, whereas the US economy expanded by 3.3%. The difference isn’t unexpected, and highlights the significant impact of US trade policy on the Canadian economy. The lack of a new trade deal between Canada and the US continues to strain the outlook for the Canadian economy. However, the market’s reaction to the poor GDP numbers was muted, possibly because the increased tariffs only affect a small proportion of goods entering the US.
While the US economy seems to be performing well, a softening employment market is fuelling expectations that the Federal Reserve (Fed) will cut rates at its next meeting. The much-anticipated speech by Chairman Powell at the Jackson Hole economic symposium had a more dovish tone than in the past, suggesting a restart of the rate-cutting cycle at the September meeting. Markets are currently pricing in three 0.25% cuts by year-end, but the timing of further cuts will depend on employment trends, especially since core inflation remains above target. The Bank of Canada is unlikely to follow the Fed in September despite the weak Q2 GDP reading, as the figure was only 0.1% lower than its projections and core inflation remains above target.
Markets
August was a great month for investors, as all major markets posted positive returns in Canadian dollar terms, while bonds were relatively flat, if not slightly positive. Canadian equities led the way, bolstered by gold, which continued its upward trajectory to reach $3,445 US dollars per ounce.
Gains were not all concentrated in gold stocks; financials, which represent just under 33% of the index, also performed well. This was driven by the strong performance of banks that continue to benefit from a normalized yield curve. US stocks lagged their global counterparts, as growth and higher-beta stocks saw some weakness late in the month due to jitters surrounding the AI trade. Despite some price softness, US corporate earnings are still growing ahead of their international peers, justifying their richer fundamentals. This is in contrast to markets in Europe and the UK, where strong year-to-date stock performance has largely been driven by expectations without corresponding earnings growth.
Fixed income markets were fairly subdued over the month as participants waited for the Jackson Hole speech and the anticipated rate cut in September. While the rate cut itself may not move the entire market, the accompanying language will be more impactful for bond traders, as it will indicate the timing and scale of future rate moves. In Canada, the yield curve continued to normalize, with long bond yields rising a few basis points and short yields falling.
The ‘normal’ shape of the yield curve (where short-maturity bonds yield less than long-maturity ones) is beneficial for fixed income investors as a whole, particularly banks, as they can pay less for deposits and lend out at higher rates, which helps explain the strength in Canadian financials. On the credit side, spreads remain at their lowest levels since the Great Financial Crisis, despite the headwinds facing the Canadian economy from trade policy. While these narrow spreads offer bond investors less compensation for risk, they indicate that stress in credit markets is low and companies can service their debt, suggesting underlying resilience in the economy.
Compass Portfolios Series F1 - Returns net of fees
|
|
August 2025 |
1 year |
3 year |
5 year |
10 year |
|
Compass Conservative Portfolio |
0.31% | 6.98% | 7.76% | 4.89% | 5.46% |
|
Compass Conservative Balanced Portfolio |
0.61% | 8.85% | 9.45% | 6.06% | 6.22% |
|
Compass Balanced Portfolio |
0.82% | 9.89% | 10.67% | 7.54% | 7.23% |
|
Compass Balanced Growth Portfolio |
1.19% | 11.27% | 12.09% | 8.73% | 8.09% |
|
Compass Growth Portfolio |
1.49% | 12.59% | 13.56% | 9.92% | 8.82% |
|
Compass Maximum Growth Portfolio |
1.77% | 14.81% | 15.50% | 11.19% | 9.60% |
Source: ATB Investment Management Inc.
ATBIS Pools Series F1 - Returns net of fees
|
August 2025 |
1 year |
3 year |
5 year |
Since inception* |
|
|
ATBIS Fixed Income Pool |
0.24% | 4.47% | 5.14% | 2.65% | 3.50% |
|
ATBIS Canadian Equity Pool |
2.04% | 17.67% | 14.25% | 13.54% | 7.77% |
|
ATBIS US Equity Pool |
1.83% | 11.10% | 14.85% | 12.03% | 11.77% |
|
ATBIS International Equity Pool |
1.50% | 13.62% | 16.54% | 7.88% | 7.38% |
*Inception date: September 22, 2016
Source: ATB Investment Management Inc.
1 Using F series returns
This report has been prepared by ATB Investment Management Inc. (ATBIM). ATBIM is registered as a portfolio manager across various Canadian securities commissions, with the Alberta Securities Commission (ASC) being its principal regulator. ATBIM is also registered as an investment fund manager and manages the ATB Funds, Compass Portfolios and the ATBIS Pools. ATBIM is a wholly owned subsidiary of ATB Financial and is a licensed user of the registered trademark ATB Wealth.
The performance data provided assumes reinvestment of distributions only and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that may reduce returns. Unit values of mutual funds will fluctuate and past performance may not be repeated. Mutual Funds are not insured by the Canada Deposit Insurance Corporation, nor guaranteed by ATBIM, ATB Securities Inc. (ATBSI), ATB Financial, the province of Alberta, any other government or any government agency. Commissions, trailing commissions, management fees, and expenses may all be associated with mutual fund investments. Read the fund offering documents provided before investing. The Compass Portfolios includes investments in other mutual funds. Information on these mutual funds, including the prospectus, is available on the internet at www.sedarplus.ca.
Past performance is not indicative of future results. Opinions, estimates, and projections contained herein are subject to change without notice and ATBIM does not undertake to provide updated information should a change occur. This information has been compiled or arrived at from sources believed reliable but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. ATB Financial, ATBIM and ATBSI do not accept any liability whatsoever for any losses arising from the use of this report or its contents.
This report is not, and should not be construed as an offer to sell or a solicitation of an offer to buy any investment. This report may not be reproduced in whole or in part; referred to in any manner whatsoever; nor may the information, opinions, and conclusions contained herein be referred to without the prior written consent of ATBIM.