While the summer months are usually a quieter time for markets, this year has been anything but.  Markets are reacting quickly to a steady stream of headlines, many tied to trade developments, which continue to shape investor sentiment. At the same time, second-quarter earnings season is in full swing, and we are watching not just the results, but also how companies are talking about the months ahead, especially considering changing tariff policies.

So far, earnings have generally been stronger than expected, lifting overall growth forecasts. Much of this strength has come from big technology companies, with solid contributions from the financial sector as well. In July, we rebalanced your portfolio, taking profit where we saw strength and adding to positions trading at attractive prices. We also initiated a new position in ASML Industries to round out your artificial intelligence exposure. ASML is essentially the “printing press” for semiconductors, holding roughly 90% of the global market share.

Canadian, U.S., and international markets are all up year-to-date. However, the U.S. dollar’s year-to-date decline against the Canadian dollar (down about 4.2%) has muted investment returns when reflected in Canadian dollars. We expect the exchange rate to hover between 73 and 75 cents through the rest of the year (currently 73 cents).

Trade policy remains unpredictable. Last month brought a mix of tariff increases and constructive agreements. On the tariff side, the U.S. reinstated reciprocal tariffs ranging from 10% to 50% on dozens of countries. For Canada, certain duties into the U.S. rose from 25% to 35%, though most exports remain protected under CUSMA. Negotiations are ongoing.

Many clients have asked how these tariffs might ripple through the economy. I’ve included a link to an article from RBC’s Chief Economist, Frances Donald, that offers a useful framework for tracking the impact:

Transmission framework: How tariffs will flow through the U.S. economy

Here at home, the Bank of Canada has held its policy rate at 2.75% for the third straight meeting. They’re treading carefully, balancing signs of firmer inflation with hints of a slowing economy, all against a backdrop of global trade uncertainty.

Overall, the combination of strong earnings and some encouraging trade developments gives us reason for cautious optimism.