1) INTRODUCTION:
François Doyon La Rochelle:
You’re listening to Capital Topics, episode #77!
This is a monthly podcast about passive asset management and financial and tax planning ideas for the long-term investor.
Your hosts for this podcast are James Parkyn and me François Doyon La Rochelle, both portfolio managers with PWL Capital.
In our podcast today we will review the global capital markets performances for the first half of 2025.
Enjoy!
2) 2025 MID-YEAR MARKET CHECK-IN: NAVIGATING THE UNPREDICTABLE:
François Doyon La Rochelle:
We have officially reached the halfway point of 2025, and today, as usual at this time of year, we will be examining what has shaped the markets over the past six months with a review of the global capital market’s performance. One thing I can say for sure: it’s been anything but dull.
James Parkyn:
That’s right François, I completely agree. But the difference this time is that many investors blame the market volatility on the chaos manufactured by what’s happening in Washington and in other geopolitical hot spots. The first half of the year has been a wild ride and surely a masterclass in unpredictability.
François Doyon La Rochelle:
Correct and we will cover all of that and more in today’s episode. Still, before we start, I will remind our listeners that the market performances I will be sharing with you today can be found on our Capital Topics website in the resources section or directly on our team’s page on the PWL Capital website. We believe these market statistics are a valuable tool to follow today’s discussion and to review the performance of your portfolios.
James Parkyn:
I would also like to add for our listeners François that they can find the performance of our model portfolios on the Capital Topics website in the resources section or directly on our team’s page on the PWL Capital website. Again, I think that reviewing the performances of our model portfolios is a great way for our listeners to evaluate the performance of their portfolios.
François Doyon La Rochelle:
That being said, let’s move on with our review. Where would you like to start James?
James Parkyn:
Well, Francois, I mentioned earlier that this first half of the year was a masterclass for managing your emotions given the unpredictability of what was happening in the world. So many events affected the markets and all of them were unforeseen. First off, I think that President Trump’s aggressive start to his second term by launching tariffs against major trading partners started the ball rolling.
François Doyon La Rochelle:
I agree, the most impactful for the markets was the new tariffs announced under the “Liberation Day” economic strategy on April 2, 2025. To make matters worse, President Trump announced additional sweeping tariffs. The announcement shocked investors due to its scale, speed, and unpredictability. It reignited fears of a global trade war and triggered one of the most dramatic equity market selloffs in recent memory. Within two or three days, this announcement wiped off trillions in equity value across the globe. The S&P/TSX Composite here in Canada lost 12.2%, the MSCI EAFE for international equities lost 13.2% and the S&P 500 in the U.S. lost 14.7%.
James Parkyn:
To be fair François, President Trump had been threatening to impose tariffs on multiple occasions in the past. But I think what surprised markets the most was the scale and also the plan to impose a 10% baseline duty on all imports.
François Doyon La Rochelle:
Yes, and that negatively surprised the markets and not only the stock markets but also the bond market. The bond market’s response may have been even more consequential when U.S. Treasury yields spiked since it ultimately forced the White House to hit the pause button.
James Parkyn:
Exactly Francois, and many believe that this is what forced President Trump to announce a 90-day so-called temporary pause on tariffs on April 9th. To me, this was the bond market telling the Trump administration that they better be very careful about their economic policies. Normally, when stocks fall, investors turn to the safety of government bonds, which pushes yields down and bond prices up. But this time, the opposite happened, yields increased, and bond prices went down, because investors feared that the tariffs would reignite inflation. Add to that international investors’ sentiment about increasing U.S. federal deficits, which could trigger foreign selling of U.S. Treasury bonds.
François Doyon La Rochelle:
Correct James, but again it’s the unpredictability of all this that baffles me. The pause to the tariffs started with a single, very brief message from President Trump on Truth Social at 9:37 in the morning on April 9th when he posted “THIS IS A GREAT TIME TO BUY”. A few hours later, in the afternoon, he formally announced the 90-day pause. The markets reacted strongly and produced the biggest single-day gain since 2008. The market psychology went from fear and panic to euphoria, all in the span of seven days.
James Parkyn:
Yes, François, and this relief rally was extraordinary. The S&P 500 surged 9.5%, the Nasdaq jumped 12% and the Dow gained 8% in one day on April 9th.
François Doyon La Rochelle:
James, I think this is a perfect example of why we don’t try and time the markets. If an investor had sold when the tariffs were announced on April 2nd but failed to reinvest when the markets bottomed on April 7th, only two trading days after, this investor would have permanently damaged his portfolio.
James Parkyn:
Well Francois I think that is a great reminder that reacting emotionally can be costly and undermine the performance of our portfolios. As we’ve said many times on our Podcast over the years, market timing is not a strategy that our listeners should follow.
So, what else happened in the first half?
François Doyon La Rochelle:
Well, James on the geopolitical front there was plenty to worry about. There is still this lingering war between Ukraine and Russia and heightened global trade tensions. Especially what’s going on between the two superpowers, the U.S and China. Add to all that, the developments in the Middle East, particularly the latest events in the war between Israel and Iran.
James Parkyn:
Yes, and again the targeting of the Iranian nuclear sites, was unpredictable. As a result of this, the price of oil jumped instantly by 16% from under $70 a barrel to above $81. When the U.S. brokered a ceasefire in the following days, the price of oil came down as quickly as when it went up when fears diminished.
François Doyon La Rochelle:
Again, totally unpredictable and thankfully compared to past conflicts like the 1973 oil embargo or the 1990 Gulf War the spike in the price of oil was short-lived. Now turning to the economy. Inflation continues to moderate globally. In Canada, inflation has dipped below 2% in April, it now sits at 1.7% versus 2.7% in May last year. This has helped the Bank of Canada to reduce its benchmark interest rate from 3.25% at the beginning of the year to 2.75%. Looking at GDP, Canada’s economy is growing although at a slow pace it even contracted slightly in April versus May but year-over-year year it is still expanding at 1.3%.
James Parkyn:
I would add Francois; in the U.S. the situation is somewhat different. Inflation rose in May to reach 2.4%. This is still much better than a year ago when it was at 3.3%. However, despite this improvement, the Federal Reserve has left the fed funds rate unchanged so far in 2025 at 4.5%. The reasoning is that the economy remains resilient and the labor market strong with unemployment even decreasing to 4.1% in June. All of this despite the pressure from President Trump to lower rates. Jerome Powell, the Fed chairman, has remained firm and kept rates unchanged walking a tightrope between controlling inflation and avoiding a growth slowdown.
François Doyon La Rochelle:
Elsewhere, the ECB cut its key deposit rate to 2.00% in June, after eurozone inflation eased to 2.0%. In the U.K., the Bank of England, which is dealing with persistent inflation now at 3.4%, trimmed its rate twice this year to 4.25%.
James Parkyn:
To conclude on the economy François, I think it is fair to say that across the board, Central Banks are cautiously shifting towards easing as they are trying to support growth without reigniting inflation.
François Doyon La Rochelle:
I agree James, now let’s look at the market statistics for the first half of 2025. Again, as a reminder our market statistics can be found on our Capital Topics’ website and in our team’s section on the PWL Capital website. We will provide the link for the market stats on the podcast page.
Okay, so starting with the fixed income, the yields in Canada and in the U.S. remain well above the average yields available in the last 20 years. In Canada, the yield on the 10-year Government of Canada bond was roughly 3.3% on June 30th, almost 80 basis points above the 20-year average of 2.5%. In the U.S., the yield on the 10-year Treasury note on June 30th was unchanged compared to a year ago at roughly 4.4% which is 150 basis points above the 20-year average of 2.9%. The Canadian short-term bonds, which are at the core of our fixed income portfolios, delivered decent performance in the first half of the year returning 2.2% which was better than the Canadian Universe Bond Index that generated 1.4%. Over the last year, however, their performance was similar at 6.3% and 6.1% respectively.
James Parkyn:
Yes, and compared to the pandemic years, the yields on Canadian bonds are still attractive paying out between 3% to 3.5%. This continues to be very good news for investors who have a large portion of their portfolios in bonds.
Now François let’s have a look at what happened in the equity markets around the world.
François Doyon La Rochelle:
Well, James, the first half of the year has been surprisingly strong around the globe despite all the noise around the tariffs, the trade wars, and the difficult geopolitical landscape.
In Canada, the S&P/TSX Composite has performed quite well with a performance of 10.2% year-to-date. Much of that strength has come from the energy and materials sectors and especially from gold producers who have seen the price of gold reach record highs. For the last year, the S&P/TSX Index returned 26.4%.
James Parkyn:
I think François we can say that a lot of investors will be surprised by the performance of Canadian stocks. Canada has been at the center of President Trump’s negative rhetoric on tariffs. We would’ve expected that the negative impact on the Canadian economy would hurt Canadian stocks.
Now Francois, let’s take a look at how U.S. stocks performed.
François Doyon La Rochelle:
Markets in the U.S. have been on a rollercoaster ride this year. By early April, the S&P 500, and the Nasdaq were both in bear market territory after losing more than 20% from their previous highs. That correction was sparked by tariff tensions, valuation concerns, and geopolitical risk. But then came the rebound, once the U.S. paused the tariffs in April, market sentiment shifted, and we are now reaching new all-time highs on the S&P 500.
James Parkyn:
Yes, it’s been a remarkable turnaround for U.S. stocks, from the lows of April on the S&P500 Index, it is now up roughly 28.5% in U.S dollars. This was a very powerful upswing and that’s why you want to stay invested at all times. Like I mentioned before if an investor sells at the bottom of the market and misses a big upswing, the investor will have permanently impacted their capital and consequently their long-term returns.
François Doyon La Rochelle:
I agree James, but despite these huge swings, the total U.S. market is up only 5.8% year-to-date as of the end of June, that’s in U.S. dollars. In Canadian dollars, it’s up 0.2% because the Canadian dollar has gained versus the U.S. dollar since the beginning of the year. For the last twelve months, the U.S. total market index is up close to 15% in both Canadian and U.S. dollars.
James Parkyn:
Francois, I think it is fair to say that the U.S. dollar has been under pressure against a lot of other major currencies year-to-date. From my readings, the U.S. Dollar fell 10.8% against a basket of currencies that includes the Euro, the Yen, the British Pound, and others. This can be explained by many factors such as trade instability caused by the tariffs, the fiscal concerns around the “Big Beautiful Bill” that was just adopted. The U.S. debt credit downgrade in May by Moody’s and finally for potential Fed rate cuts later this year which would further weaken the dollar.
François Doyon La Rochelle:
That’s correct James, the markets hate uncertainty and with everything that is happening in the U.S. right now, I think that the Dollar’s safe-haven premium is eroding and questioning its role as the global reserve currency. To finish with U.S. equities, small-cap stocks have been struggling this year as they are down close to 7% year-to-date in CDN dollars terms.
James Parkyn:
We can also add what’s being reported in the financial media. International investors are reallocating away from U.S equities to international equities.
So Francois, that said we can now share with our listeners what has happened in international developed and emerging markets.
François Doyon La Rochelle:
Well James I can report that both markets had a very good performance. Developed international equities, measured by the MSCI EAFE are up a strong 13.2% in Canadian dollars year-to-date. In local currencies, it’s up 7.8%. The difference in return is due to the fact that the major currencies in that basket have gained against the Canadian dollar. As in 2024, International large and mid-cap value stocks continue to outperform growth stocks as they returned 16.4% year-to-date compared to 9.9% for growth stocks. Contrary to the U.S., small-cap stocks continue to do well, and they outperformed their large and mid-cap counterparts with a performance of 14.5% in Canadian dollars. Emerging markets also had a good first half, large and mid-cap stocks generated 9.5% again in CAD and small-cap stocks delivered a decent return of 5.1%.
James Parkyn:
So overall François, we can say that the first half of 2025 has been very volatile but investors who stayed invested with diversified global portfolios, did well. As we said earlier, although the first half of the year was a masterclass in unpredictability from equity market meltdowns to spectacular rebounds, to the tariff soap opera, and the geopolitical tensions, there was plenty to worry about. The Markets taught us once again that staying disciplined to our long-term asset mix was the best option.
François Doyon La Rochelle:
I agree James, and while we can’t predict the second half of the year, we can prepare for it by staying grounded in evidence and clarity. And that’s really at the heart of our message: stay disciplined, stay diversified, and stick to your financial plan. Keep your portfolio patient and your perspective long.
James Parkyn:
Well said François, I think we can conclude here.
3) CONCLUSION
François Doyon La Rochelle:
Thank you, James Parkyn for sharing your thoughts and expertise again today.
James Parkyn:
My pleasure, François.
François Doyon La Rochelle:
That’s it for episode #77 of Capital Topics!
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Again, thank you for tuning in and please join us for our next episode to be released on August 13th. In the meantime, make sure to consult the Capital Topics website for our latest blog posts.
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