Q2 PIMG Commentary: A Record Recovery
10.07.25
The second quarter of 2025 was a strong reminder of the importance of having a long term investment plan that accounts for unexpected, short term disruptions. The quarter began with a viloent selloff as liberation day and a global trade war drove investors out of US equities. International markets were the initial beneficiaries of this selling as a reallocation to countries less impacted by trade policies seemed prudent. The latter half of the quarter was dominated by geopolitics as the bombing of Iran and subsequant ceasefire managed to create an opportunity for peace. Any investors that have been using headline news to stear their decisions over the last quarter has certainly run afoul. Those that have stayed the course and stuck with their investmetn strategy have been well rewarded.
The Canadian markets rose by over 8% during the quarter, outperforming the 5.4% gain seen in the U.S. market (when measured in Canadian dollars). Despite ongoing trade tensions and geopolitical noise, Canadian markets benefited from a combination of attractive valuations, a defensive sector mix, and a modestly strengthening Canadian dollar. These factors contributed to renewed interest from global investors looking for relative stability and value. A rally in the precious metals markets and their related miners helped push Canadian markets higher despite a faltering oil market.
One of the biggest developments this quarter was the Trump administration’s renewed focus on tariffs. A new 10% tariff on Canadian oil exports, along with proposed 25% tariffs on a wider range of Canadian as well as Mexican goods, created fresh uncertainty. These trade measures have made investors more cautious, especially in the U.S., where markets are already sensitive to policy changes. The result has been increased volatility and a more defensive tone in investor behavior. Retaliatory measures and inflationary pressures remain at the forefront of minds; while no trade deal has been struck as of yet, thanks to Carney’s removal of the digital services tax, trade talks have resumed with a goal of mid-July as the resolution timeline.
Other notable policy developments this quarter include a push for “America First” industrial policy, with incentives for domestic manufacturing, as well as increased regulatory scrutiny on foreign investments and tech companies. These policies have introduced significant geopolitical and economic uncertainty, prompting investors to seek safer, more stable markets—a trend that has benefited Canadian equities. What has further benefited Canadian equities, as briefly aforementioned, includes: valuations continuing to remain attractive, meaning many Canadian companies are still trading at reasonable prices compared to their earnings and growth potential. Second, Canada’s market has a defensive sector mix, with strong representation in areas like banking, energy, and materials, which tend to hold up better during uncertain times. Third, the Canadian dollar strengthened slightly, which helped boost returns for domestic investors.
On the economic front, inflation has continued to ease, which is good news for both consumers and investors. Both the Bank of Canada and the U.S. Federal Reserve maintained a cautious stance on interest rates. Central banks signaled a gradual easing cycle, though progress has been uneven. In Canada, the 10-year government bond yield stabilized between 2.9% and 3.9%, reflecting a more balanced outlook. In the U.S., rate cuts are expected later in the year, contingent on inflation data and labor market trends.
Canada’s economy showed signs of resilience, though not without challenges. Real GDP grew at an annualized rate of 2.6% in Q4 2024, but growth slowed in early 2025 due to trade disruptions. Unemployment stabilized at 6.6% in February and is projected to average between 6.6% and 7.0% through the rest of the year. Inflation is moderating, allowing the Bank of Canada to continue its rate-cutting cycle, with a target of 2.00% by year-end. Consumer spending held up well in Q1, supported by temporary fiscal stimulus and front-loaded exports ahead of U.S. tariffs.
In contrast, the U.S. economy showed signs of cooling. GDP contracted by 0.2% in Q1 2025, and year-over-year growth has slowed. Unemployment is expected to rise to 4.3% by the end of the year. Inflation is gradually declining but remains above the Fed’s 2% target, and consumer spending is slowing as households become more cautious amid rising prices and policy uncertainty.
Throughout the quarter, we stayed active in portfolios. We took advantage of market pullbacks to invest in high-quality companies at attractive prices. Two notable additions were Salesforce (CRM) and Methanex (MX)—both companies we’ve owned in the past and continue to believe in.
Salesforce (CRM) is a global leader in customer relationship management (CRM) software. The company generates solid free cash flow and is expanding its offerings with new AI-powered tools. After a period of slower growth and rising costs, Salesforce is now showing signs of improved efficiency and renewed earnings momentum. We believe it’s well-positioned to benefit from the ongoing shift toward digital tools and automation across industries.
Methanex (MX) is the world’s largest producer and supplier of methanol, a key industrial chemical used in products like plastics, paints, and fuel. Methanex has a global production network, competitive cost structure, and exposure to energy markets, which gives it a unique edge. The company is currently trading well below its histroical valuation and and after years of investing in growing production, we believe more shareholder friendly behaviour will unlock better perofrmance ahead.
As always, we continue to rebalance portfolios to avoid overexposure to any single sector or region. While the U.S. “Magnificent Seven” tech giants still dominate headlines and drive much of the U.S. market’s performance, we are careful to manage concentration risk. Our portfolios remain broadly diversified across asset classes, sectors, and geographies. This helps reduce risk and improve long-term stability.
Investor sentiment remains cautious. Many indicators—such as market volatility, fund flows, and investor surveys—suggest that fear and uncertainty are still high. Historically, these kinds of environments have often created attractive opportunities for long-term investors. While we don’t try to predict short-term market movements, we do believe in being opportunistic when we see strong fundamentals and reasonable valuations.
As we move into Q3 2025, key themes to watch include the trajectory of interest rate cuts and their impact on consumer spending and corporate borrowing; the evolution of U.S. trade policy, especially regarding tariffs on key Canadian exports; and the resilience of corporate earnings amid a slower global growth environment. While the road ahead may still be bumpy, our investment approach remains steady. We are committed to helping our clients navigate uncertainty with confidence through disciplined, diversified, and thoughtful investing.
Your Plena Wealth Advisory Team
This newsletter has been prepared by Plena Wealth Advisors. Statistics and factual data and other information in this newsletter are from sources Raymond James
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