Markets have had to digest a lot this year — from shifting tariff policies to questions about inflation and growth — yet the resilience of both the U.S. and Canadian economies continues to stand out.

Rate Cuts Mark a Turning Point

In September, both the Federal Reserve and the Bank of Canada lowered their benchmark rates by 0.25% — the first cuts since 2024 – followed by additional 0.25% cuts in October. Policymakers have clearly shifted focus toward supporting employment and growth, but inflation concerns likely mean these are the last rate cuts in 2025.

Lower rates typically act as a tailwind for equity markets, improving financials conditions lowering borrowing costs, and boosting demand in interest-sensitive areas like housing and business investment. This policy pivot should help extend the current economic expansion into 2026.

One of the unique factors in this current rate cut environment is that the U.S. is one month into a government shutdown. What this means for the Fed is that the decisions to cut rates has come with only partial visibility into the economy. Although this doesn’t create an immediate problem, it could mean that we see unexpected rate moves when the Federal Reserve has visibility on all economic data.

Can the markets keep going?

As the S&P 500 continues to ink new all-time highs, one of the most frequent questions we are asked is whether the markets can continue their strong performance and if so, for how long?

The key point to remember here is that in 2025 our portfolios look very different than the overall broader markets. We have a higher weighting towards quality companies whereas the best performers in North American markets have been largely driven by either: companies in the gold sector, capitalizing on the declining confidence in the U.S. dollar and a flight towards gold, or technology companies, riding the Artificial Intelligence wave. Many of these AI companies will shape the future of how we live and work, while others are more speculative in nature.

Our focus has been on some of the over-looked companies with boring, stable and consistent and growing earnings.

Earnings still matter…. right?

Amid all the noise this year, our focus remains on quality — companies with solid balance sheets and consistent earnings growth. Ironically, in 2025, the best performing stocks have been those with no revenue. As the chart below illustrates, this has been a truly unique year where the profitable companies on the NASDAQ have underperformed companies with no revenue by more than 25%.

We’ve seen cycles like this in the past and the pendulum will eventually swing toward more rational behavior. The good news is that our more defensive posture will serve us well when we see a pullback in some of these speculative names.

Looking Ahead

The ongoing Tariff situation continues to overhang the markets and clouds the ability of companies to accurately forecast earnings. The chart below illustrates the significant rise in tariffs going back to where they were in the late 1930’s.

Although tariffs generate revenue for the country imposing them, it ultimately makes products more expensive for the consumer and is a drag on economic growth.

On the flip side there are several key factors providing the backdrop for continued strength:

• increasing corporate profits
• the AI story
• likely interest rate cuts
• potentially lower impact from tariffs than expected
• tax cuts

Ultimately it is the combination of interest rate cuts and resilient corporate earnings that reinforces our view that maintaining an “invested but selective” stance remains appropriate. We continue to monitor the evolving policy landscape closely, balancing opportunity with vigilance in a still-uncertain environment.