July 2025
Changes in U.S. tariff policy have been dramatic and frequent. The U.S. will likely feel the greatest weight of the shock as the tariff costs begin to depress corporate earnings and raise consumer prices. U.S. data reflecting tariff impact has been unreliable as average tariff rate calculations have used trade flow data from the prior period, reflecting a lag in the re-orientation in trade flows once the new trade barriers are implemented. Also, businesses have found it difficult to determine exactly when and what tariffs they are required to pay. The expected impact on global industrial production is currently concentrated in Asia tech and European pharma. Canada remains relatively well positioned as CUSMA exemptions are allowing nearly 90% of Canadian goods to access the U.S. market duty-free. Meanwhile, Canada is pursuing a diverse trade policy away from the U.S. In July we maintained our twelve-month forward outlook of six months of Stagnation (U.S. Real GDP growth less than 2.5%) followed by six months of Recession (negative GDP growth) over the next twelve- month period to three months of Stagnation and nine months of Recession.
China’s economy expanded 5.2% year over year in Q2 2025.1 China’s consumer prices rose by 0.1% in June 2025,2 while China’s surveyed unemployment rate stood at 5.0%, unchanged from the previous month.3 For the first half of 2025, China recorded a total trade surplus of USD 586 billion, with exports rising 5.9% year over year, while imports dropped 3.9%.4 The Eurozone economy expanded by 0.1% quarter-on-quarter in the second quarter of 2025. Among the bloc’s major economies, Spain and France outperformed with growth of 0.7% and 0.3%, respectively. Germany and Italy slipped into contraction, each shrinking by 0.1%.5 The Eurozone’s trade surplus widened in May 2025, as exports rose 0.9% while imports declined 0.6%.6
The U.S. economy grew at an annualized 3% in Q2 2025, rebounding from a 0.5% contraction in Q1. The expansion primarily reflected a 30.3% plunge in imports, following a 37.9% surge in Q1, when businesses and consumers rushed to stockpile goods ahead of expected price increases following a series of tariff announcements.7 The annual inflation rate in the U.S. accelerated to 2.7% in June8 while the U.S. unemployment rate edged down to 4.1%.9 The U.S. trade gap widened to $71.5 billion in May. Exports fell 4% from a record high in April. Meanwhile, imports decreased 0.1% to a seven-month low. The deficit with Canada and Vietnam widened while the shortfall with China narrowed to $14 billion from $19.7 billion.10 The annual inflation rate in Canada rose to 1.9% in June11 while the unemployment rate eased to 6.9%.12 Canada posted a trade deficit of C$5.9 billion in May. Imports from the U.S. fell by 1.2% while exports to the U.S. fell by 0.9%. This was offset by a 5.7% surge in exports to countries excluding the U.S.13
Shrugging off inflation concerns, trade tensions, and geopolitical risks, U.S. equities staged a dramatic recovery in Q2, with the S&P 500 rebounding by over 20% since the tariff-related tumult experienced in early April. Fueled by robust corporate earnings from Big Tech and recent optimism surrounding potential upcoming tax cuts, the 500 reached another all-time closing high on the last trading day of the month, closing the quarter up 10.9%. The S&P Mid Cap 400 and S&P Small Cap 600 were up 6.7% and 4.9%, respectively. The Canadian S&P/TSX Composite increased 8.5%. The S&P Europe 350 had a healthy return of 2.6% in Q2. Germany outperformed among S&P Europe 350 constituent countries, contributing more than a third of the index’s quarterly gains. The S&P Pan Asia BMI (USD) achieved a notable quarterly gain of 12.7%, bolstered by most Asian currencies strengthening against the US dollar.
In July, we maintained exposure to investment-grade mortgage-backed pass-through securities issued and/or guaranteed by U.S. government agencies. Gold is held across all models as a long-term strategic asset, playing a role as an effective hedge against the heightened geopolitical uncertainty and market volatility. Gold has climbed nearly 30% this year as investors have sought safety amid heightened trade conflicts, geopolitical tensions, and eroding trust in dollar-denominated assets. We maintained exposure across all models to U.S. Large Caps.
Overall, demand for foreign goods in the U.S. is expected to hold up in the near term mostly from a lack of comparatively cheap domestic alternatives. As the tariffs take hold, demand in the U.S. is expected slow as the economy softens. The impact on inflation and unemployment from tariffs was slow to show up because of the lags between when imports face tariffs, and when an imported good hits store shelves. July data has indicated that the impact is taking hold. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.
Deborah Frame, President and CIO
Drew Millard, Portfolio Manager
1 Trading Economics. China GDP. July 15, 2025.
2 Trading Economics. China Inflation. July 9, 2025.
3 Trading Economics. China Unemployment. July 15, 2025.
4 Trading Economics. China Trade. July 14, 2025.
5 Trading Economics. E.U. GDP. July 30, 2025.
6 Trading Economics. E.U. Trade. July 16, 2025.
7 Trading Economics. U.S. GDP. July 30, 2025.
8 Trading Economics. U.S. Inflation. July 15, 2025.
9 Trading Economics. U.S. Unemployment. July 3, 2025.
10 Trading Economics. U.S. Trade. July 3, 2025.
11 Trading Economics. Canada Inflation. July 15, 2025.
12 Trading Economics. Canada Unemployment. July 11, 2025.
13 Trading Economics. Canada Trade. July 3, 2025.
Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. June 30, 2025. Index performance is based on total returns and expressed in the local currency of the index.
