Quarterly commentary

Q3 2025

As the calendar changed from summer to fall, and we await the turning back of the clock on November 2^nd, Canada’s sport of hockey has kicked off a new season, but all the attention is on the sport of baseball. The Toronto Blue Jays are going to the MLB World Series! The last time the Jays were in the final series was 1993, which they won, against the Philadelphia Phillies. Game 7 was a nail-biter, but the Jays pulled it out and will start the series at home against the Los Angeles Dodgers on Friday, October 24^th.

North American equity markets ended the 3^rd quarter of 2025 in strong form. After much volatility in the spring, global markets have somewhat normalized and the direction since has been upward and based more on normal data points.

Interest rates in North America continued to decline in the 3^rd quarter with the Bank of Canada cutting the key rate by 25 basis points in September. The next meeting for the Bank of Canada is October 29^th and it is expected we may see another cut at this meeting. Late last week, Bank of Canada Governor Macklem described the Canadian labour market as “soft”. The Federal Reserve in the US also cut rates in September by 25 basis points. Next meeting for the Federal Reserve is set for November 6^th. It is expected more rate cuts are coming in the US. The job market in North America has seen softening and the balancing act between employment and managing inflation will continue to drive the narrative for rates in North America. Yields from the bond markets have fallen considerably this year. For the consumer, this has helped bring down borrowing costs which has had a positive impact for the considerable number of mortgages coming due for renewal in 2025 and 2026. Although lowering rates is a tool the central banks will use when seeing the economy slow down, the result can be stimulative as borrowing costs reduce for both the consumer and businesses. There are many factors at play here and we will continue to balance the portfolio accordingly.

There has been much discussion lately regarding market valuations and bubbles forming in the market, driven primarily by the theme of artificial intelligence (AI). Indeed, this sector of the market has grown incredibly over the last 3 years and the market share of some of the key players in the space has exploded higher. However, so have their earnings. This said, we feel the names we own are industry leaders and are key to the advancement in the sector. There has been much made of the valuation of the S&P 500 currently in terms of earnings and the future expected earnings of some of the companies that lead the index. As of October 2025, we have now been in a 3-year bull market which was kicked off just before OpenAI unveiled ChatGPT in November 2022. Not sure anyone really saw this coming, but it begs the question how the same “anyone” can predict what happens next. We prefer to be invested and think longer term. There will always be something to worry about, but remember, the market has been kinder to disciplined investors and less so to sideline sitters.

We do feel the last quarter of the year will continue to provide data around how companies are managing the current trade environment and how the inputs to their bottom line will be impacted. The impact has varied greatly between different sectors of the economy but the relationship between how companies manage the variables within their control and the net result to the end consumer is still working through the system. The earnings outlook for 2026 and potential revisions to such outlook may become clearer in the quarter ahead.

We have benefited this year from 34 dividend raises from the companies we own in the portfolio. As has always been the foundation of our portfolio, these companies are high quality and in many cases are the fabric of our society. We remind clients during our reviews of the fact that when a CEO of a company is raising its dividend, all factors that influence the outlook of the company are considered. Not all companies we own perform the same, but we feel all play an important part of a well-diversified, balanced approach.

In nearly all our reviews, we are commenting on how client portfolios are at all-time highs. Like managing emotions during bear markets, it is our job to manage the emotions of bull markets as well. We enjoy seeing our “winners” run but also believe it prudent to manage position size and sector exposure. As markets trade at all-time highs, people are naturally trying to capture the high and manage exposure to the next downturn. We remind clients that market highs happen regularly and timing the in-and-out of the exposure has proven to be challenging to do with success. No one predicted the run we have experienced in the last 3 years. A correction is a normal part of investing, and our portfolio will be ready for the next one, whenever it should come about.

We continue to post timely reading pieces to our website so please be sure to view our Publications page for updated and timely articles. We not only try to keep you informed as to what is happening in the economy and the markets, but we also want to keep you focused on some bigger picture items related to financial and estate planning, health, and topics of interest.

This time of year, we are busy meeting with clients for reviews, but we are always happy to chat if necessary and answer any questions you may have. The team is always here to support our relationship with you and your family.

Enjoy the lovely fall weather.

Warm regards,

Bow Valley Wealth Management Group