What transpired was shocking to many due to the scope and size of the tariffs being much larger and comprehensive than was anticipated. This gave rise to a large wave of uncertainty rolling through markets leading to a sell-off in risk assets prompted by concerns about what it would mean for the future of global trade and economic and business growth.
Impacted countries, such as China, responded with their own reciprocal tariffs, mounting fears that the global economy was headed for a recession. However, after one week of selling pressure, markets responded positively to news that the U.S. was talking to many of the affected countries casting a ray of hope across markets that potential trade deals would provide a level of certainty and reduce the potential negative impact tariffs would have on global economic and business growth.
After turning the corner, markets continued to grind higher as news continued to roll-out on deals, potential deals, and pauses in reciprocal tariff rates. While a short escalation in the trade war between the U.S. and China took some air out of market optimism, an agreed de-escalation in tensions between the nations, which included some ratchetting back of tariff rates, reignited investor’s optimism.
Although the environment remained clouded after the market recovery, and a heightened level of uncertainty remained creating forecasting and operating challenges for many including investors, business leaders, and policy makers, equity markets continued their upward trend. Supporting this move was a moderated inflationary environment, Central Bank easing posture, European fiscal stimulus from its sizable increase in infrastructure and defense spending plans and the resiliency of the U.S. economy. While tariffs and rising energy prices remained an inflationary risk, markets felt comfortable with a long-term view on inflation.
As the quarter progressed investors turned their attention to the “One Big Beautiful Bill” (Bill) which was focused on tax cuts, economic growth, and spending cuts. The Bill was signed into law by President Trump on Friday, July 4, 2025. While certain aspects of the Bill are expected to stimulate economic and business growth, concerns were raised about the potential increase in future U.S. fiscal deficits and its overall debt position. These fiscal imbalances and cumulative debt levels could lead to higher long-term interest rates and become a potential headwind to equity markets.
Markets have been operating under a cloud of heightened geopolitical tensions for years and this quarter the Israel/Iran conflict that started in June increased this level of tension and uncertainty. Oil prices rose and markets sold off in the first few days of the conflict, but these moves were reversed as concerns of a potential expanded regional conflict eased, followed later by a ceasefire between the two nations. The situation remains uncertain, but the risk of a larger conflict appears to have subsided for now.
We remain positive in our long-term view of equities. While there remains a layer of uncertainty related to global trade policy and a heightened level of geopolitical tensions, economic growth prospects for many countries remain positive, inflation forecasts paint a picture of a long-term moderated inflationary environment, central banks remain in an easing posture, and increased fiscal spending plans by countries including Canada, the U.S. and some European countries provide a stimulus for economic growth. While we expect volatility to remain in place, markets have demonstrated resilience through time, with each downturn followed by a recovery. This is why many investors remain invested through periods of market turmoil like those experienced through the first two quarters of this year.
