In the first half of 2025, the Canadian and international stock markets produced positive returns despite the heightened global trade uncertainty.[1] GDP growth has accelerated slightly from 2.1% to 2.2% in Canada and from 1.2% to 1.5% in the European Union. By contrast, growth has declined in the US (from 2.8% to 2.0%), Japan (from 1.7% to 1.3%), and the UK (from 1.5% to 1.3%) and was stable in China (5.4%).

Inflation is under control in Canada (declining from 1.8% to 1.7%) and higher than its 2% target in the US (despite a decline from 2.9% to 2.4%). The unemployment rate in Canada increased from 6.7% to 6.9%, while it remained stable in the US at 4.1%.

On the interest rate front, the Bank of Canada rate was cut from 3.25% to 2.75%, the European Central Bank reduced its interest rate from 3.00% to 2.00%, and the US Federal Funds target rate held steady at 4.50%. While inflation moved closer to its 2% target, the US Federal Reserve is reluctant to cut interest rates, considering the potentially inflationary effect of the trade war launched by the Trump Administration. Ten-year government bond yields increased from 3.23% to 3.27% in Canada and declined from 4.57% to 4.23% in the US.

Eight of the eleven global market equity sectors delivered positive returns, with industrials (12.1%) and financials (11.5%) leading the way. The top-performing countries were Greece (46.4%), Poland (45.3%), and the Czech Republic (43.1%).

Here are our observations on asset-class returns in the first half of 2025:

Short-term and total-market Canadian fixed-income indices produced 2.2% and 1.4% returns, respectively.
Short-term and total-market global fixed-income securities (hedged to the Canadian dollar) generated returns of 2.1% and 1.9%, respectively.
Canadian equity delivered a 10.2% return.
US stocks returned 0.2% in Canadian dollars and 5.8% in US dollars.
International developed-market stocks returned 13.2% in Canadian dollars and 7.8% in local currencies.
Emerging-market equity returned 9.5% in Canadian dollars.
Small-cap stocks outperformed large-cap stocks in Canadian and international developed markets. Conversely, large-cap stocks outperformed in the US and emerging markets.
Growth stocks outperformed value stocks in Canada and the US. Value stocks outperformed in international developed markets. Value and growth stocks performed similarly in emerging markets.
The US dollar depreciated against the Canadian dollar, reducing US stock returns (measured in CAD) by about 5.5%. Conversely, the other major currencies appreciated against the Canadian dollar, boosting the return of international developed markets by roughly 5%.

In the coming months, geopolitical uncertainty will likely persist. As always, we will avoid investing based on political and economic forecasts. Nobody can reliably predict future events and how markets will react to them. But we know that while a diversified stock portfolio can be volatile at times, it will likely be resilient in the long run. At the same time, bond holdings provide some stability for portfolios. Under such circumstances, PWL will continue to invest with a long-term perspective and adhere to its philosophy of global diversification, low costs, and efficient tax management.

[1] Sources: DFA, Bank of Canada, Statistics Canada, US Federal Reserve, US Bureau of Labor, Eurostat, UK Statistics. All return data is calculated in Canadian dollars unless otherwise indicated.