Market and economic commentary
July 2025

Equity markets marched upward, with the S&P 500 reaching a new high and leading equity markets as artificial intelligence (AI) continues to propel hyperscaler and other tech stocks. With each deal signed, trade and tariffs fell off the headlines as earnings took the spotlight. Overall global sentiment is moving to a more bullish position as tariff uncertainty fades. 

Most of the Compass Portfolios and ATBIS Pools (the Funds) saw positive performance over the month, as US markets primarily drove returns for the month, which was somewhat offset by falling bond prices. Up-to-date performance data for the Funds can be found here.

Below are index total returns in Canadian dollar (CAD) terms for July:

Dealmaking with the US shifted into high gear as trading partners sought to avoid the August 1 deadline, which saw tariffs on nations without a deal rise anywhere from 15% to over 35%. Deals were announced by the EU, the UK, and Japan, which helped establish a deal corridor of approximately 10 to 20% for future deals. Unfortunately, Canada was not able to secure a deal in time for the deadline, leading to tariffs of 35% on all non-CUSMA compliant Canadian goods entering the US. On the bright side, some estimates indicate that this only affects around 10%-15% of Canadian exports to the US, but the lack of a deal is likely to lead to continued tension between the two nations. 

Even with trade-induced policy uncertainty, the US economy's strength and a robust labour market were enough to keep the Federal Reserve (Fed) from cutting interest rates at its July meeting. There is still concern from the Fed that price increases from tariffs have yet to show up in inflation figures, leading to hesitancy in easing policy rates. This decision was seemingly turned on its head when the payroll numbers for July were released, which indicated the largest downward revision (down 258k) in jobs numbers since 2020. The jobs report sent yields and equity markets down, and investors are now anticipating two rate cuts by year-end, starting with the September meeting. The Bank of Canada also held rates at its July meeting, citing firmer core inflation figures, but also an economy that is showing signs of holding up despite a pullback for the second quarter largely due to lower exports to the US. 

Earnings resilience in the US market continues to propel it past its peers, with five of the “Magnificent Seven” stocks beating expectations and raising forward-looking guidance. Revenues and earnings are still rising in aggregate across the US, but there is some concentration of earnings within technology stocks and those related directly to the AI theme. That being said, the “One Big Beautiful Bill” (OBBB) and other policies still should provide a further lift to other parts of the market, namely financials which saw favourable provisions such as through deregulation. Industrials are also slated to benefit from the bill due to increased defence spending and enhancements to business tax deductions. Earnings growth for 2025 is still slated to be the strongest in the US compared to its international peers despite some tariff-induced downward earnings revisions. 

Taking currency effects out of the equation, international equities as measured by the MSCI EAFE index were actually down 1.4% (in USD terms) for the month of July. The index was pulled down largely by European stocks which saw mostly flat performance turn negative as markets reacted poorly to the one-sided deal the EU struck with the US, which saw a 15% tariff and no retaliatory tariffs from the EU for at least six months. In Canada, equities were positive on the month driven primarily by financials and information technology, despite the lack of a trade deal with the US. 

Fixed income markets saw some volatility over the month as the Universe Bond saw another negative month. Yields reached a peak in the middle of the month as persistence in core inflation on both sides of the border saw investors pricing out fewer rate cuts this year. Bond prices somewhat recovered by the end of the month as news of trade deals with the US gave some much-needed clarity to the market. Credit spreads continued to grind lower within Canadian corporate bonds, touching lows not seen since at least 2018, and coupled with their shorter duration, led them to outperform the index overall. 

Compass Portfolios Series F1 - Returns net of fees

ATBIS Pools Series F1 - Returns net of fees

¹ Using F series returns