The Markets

The TSX is up 4.3% for the month of August and 15% year to date.

The S&P 500 is up 2.6% for the month of August and 10.5% year to date.

The NASDAQ is up 2.8% for the month of August and 12.4% year to date.

(Numbers as of close August 29, 2025)

Global Insight Weekly attached

 

From our Portfolio Advisory Group (as of August 22, 2025)

Despite ample reasons for pessimism this year, the global economy and markets have largely exceeded expectations. This has sharpened attention on corporate financial results and guidance, as investors look for insight on how firms are navigating a more challenging operating environment caused by unpredictable U.S. trade policy, how tariffs are feeding into inflationary pressures in the U.S., and the potential impact on monetary policy. We discuss in more detail below.

 

A reassuring Q2 earnings season

With the U.S. earnings season now largely complete, results were generally better-than-expected, with the realized earnings growth rate handily surpassing consensus estimates. Notably, the number of earnings estimate upgrades relative to downgrades reached its highest level since late 2021, marking a reversal from earlier cuts prompted by uncertainty over the impact of supply chain disruptions, which to date have proven less severe than initially feared. While analysts have attributed the solid earnings performance to effective tariff-mitigation strategies and a weaker U.S. dollar, they also cautioned that the full effects of tariffs have yet to be felt given the front-loading of goods earlier in the year has likely deferred the impact.

 

Moreover, the burden of tariffs is unevenly distributed across industries. Some trade-reliant sectors are already feeling the pinch. For instance, major U.S. automakers revealed hefty import duty charges in relation to automobile and metals tariffs, while select retailers have delivered mixed results and warned of potential price hikes once their front-loaded inventories are exhausted. On a more positive note, persistently strong results and constructive guidance from large-cap technology and adjacent companies, key beneficiaries of the AI-related investment cycle, have provided crucial support to the S&P 500’s earnings momentum.

 

On balance, the earnings outlook remains supportive of equity markets. Consensus estimates for the S&P 500 are pointing to profit growth of around 9% in 2025 and 12% in 2026. Globally, the MSCI All-Country World Index is expected generate earnings growth of 9% in 2025 and 11% in 2026. As we progress through the second half of 2025, markets will continue to home in on corporate guidance for 2026. Most companies offering 2026 guidance are holding projections steady, but management teams continue to emphasize an uncertain environment and are still gauging how tariff impacts may feed through to financial results. As RBC Capital Markets Head of U.S. Equity Strategy Lori Calvasina noted, “we have a long way to go to understanding how the recent changes in trade policy will impact demand and 2026 outlooks.”

 

U.S. inflation readings flash mixed signals

Elsewhere, markets are closely watching the transmission of tariffs through the economy. The front-loading and inventory buildup at pre-tariff prices have temporarily shielded consumer prices and corporate profit margins. But as these stockpiles unwind, firms are likely to face an uncomfortable decision: absorb the tariffs at the expense of lower margins (which may increase pressure to cut costs elsewhere such as labour) or pass the tariffs onto consumers through price increases (which may dampen demand). Recent U.S. producer price data showed the strongest monthly increase in over a year, suggesting tariffs may be impacting prices further up the supply chain. However, the latest consumer price data was relatively benign. The divergence between consumer and wholesale prices underscores the difficulty in assessing the true trajectory of inflation, a factor that is complicating the outlook for U.S. monetary policy.

 

All eyes on Jackson Hole

Markets will be attentive to Federal Reserve Chair Jerome Powell’s speech at the annual central bank conference in Jackson Hole, Wyoming. This event has long been a key platform for Fed chairs to potentially provide guidance on the Fed’s thinking around monetary policy. This year, markets will be parsing Powell’s comments for hints about whether the Fed will maintain its “wait-and-see” approach or signal a possible policy shift. A weaker-than-expected jobs reports for July prompted markets to price in a 25-basis point cut at the Fed’s September meeting. But with inflation still above the central bank’s 2% target, policymakers face a tricky task of balancing their dual mandates of maximum employment and stable prices.

 

What about Canada?

Meanwhile, consumer price pressures in Canada have eased, largely due to the unwinding of the consumer carbon tax back in April. On trade, the USMCA free trade agreement continues to backstop duty free access to the U.S. market for most Canadian exports. The U.S. Census Bureau reported 92% of Canadian exports to the U.S. crossed the border duty free in June―up slightly from 91% in May and 89% in April. The Bank of Canada (BoC) has held its benchmark rate steady at 2.75% for three consecutive meetings since March and RBC Economics expect the BoC is unlikely to cut again in this cycle.

 

Takeaway

In the U.S., an uptick in producer prices and the prospect of consumer price increases have renewed concerns that trade-policy uncertainty could stoke inflation in the near term. Nevertheless, strong corporate fundamentals alongside upward earnings revisions have continued to provide a foundation for cautious optimism in markets. For portfolios, “invested, but watchful” remains a sensible stance to us as we continue to monitor developments on trade policy and corporate earnings.

 

 

Also from our Thought Leadership team and RBC Capital Markets, I’m attached two interesting articles on Canada

 

RBC Economics – Canada’s Growth Challenge – Why the economy is stuck in neutral.

Summary: Canada is a large, geographically diverse, resource-rich country with a dispersed population, and that creates unique infrastructure, regulatory and investment challenges. Administrative burdens across multiple levels of government have created inefficiencies and increased internal trade barriers. Infrastructure chokepoints and red tape make international trade more difficult than it should be. Even the mobility of skilled workers—hard enough given our geographic expanse—can be limited by the way provinces, industries and professional groups try to control labour supplies. Among the most compelling options for governments, businesses, unions and industry groups are:

• Cutting red tape and reducing internal trade barriers. This doesn’t have to mean lowering standards but rather improving consistency and rules across jurisdictions to make project approval times and costs more predictable.
• Better utilization of immigrant skills. All population and workforce growth is going to come from immigration, and we need a better system to match education and skills with jobs.
• Improving tax competitiveness. Canada’s tax competitiveness has been slipping. Our level of taxation overall is lower than other more productive economies, but broader reforms to reduce complexity and the cost of tax compliance could help to attract more investment.
• Adopting new technologies. “Smarter” investments like artificial intelligence can help but adoption rates are low in Canada. Making it easier to invest in new technologies is critical to maintaining global competitiveness.
• Capitalizing on a highly educated workforce. Canada’s highly educated workforce is uniquely positioned to benefit from a global shift to a more services-based economy. Canada needs to ensure investments in education are generating a return.

RBC CM – Energy Insights. Awakening the Northern Giant

Summary: RBC CM’s view: The connection between Canada’s sovereignty and urgency to grow its energy exports has intensified under the vision of Prime Minister Carney and Minister of Energy and Natural Resources Hodgson. An ongoing state of emergency precipitated by the Trump administration’s decision to implement tactical tariffs on its northern neighbor has spurred the new federal government to shape Canada into an energy superpower. Enhanced oil export diversification—and carbon competitiveness in the oil sands to futureproof markets down the road—could be the next big steps in Canada’s journey.

 

For an update on tariffs:

A summer tariff update
Thursday, August 28, 2025
by Kevin Deckert, Portfolio Analyst RBC Global Asset Management

 

The tariff landscape is shifting dramatically, and for many clients, it remains a top concern. The summer brought a wave of new tariffs imposed by the Trump administration, adding to the ongoing whirlwind of trade tensions. While the rhetoric may seem like a never-ending cycle of threats and counter-threats, the numbers tell a clear story: the average U.S. tariff rate has been climbing. The more recent increase is largely driven by a combination of factors, including new copper tariffs, higher rates for countries that failed to negotiate deals, and substantial hikes for those that didn’t.

 

Source: Evercore ISI Tariff Tracker; IMF, Macrobond, RBC GAM. Effective tariff rates estimated based on tariffs in effect as at the specified date and up to August 7, 2025; threatened rates no included. Excludes de minimis effect. All UK steel exports to U.S. are assumed to be covered under the quota system. Expected tariffs rate assumes instantaneous and

complete implementation (i.e. does not account for shipping delays, implementation lags, etc.)

 

Some countries, like Mexico and China, have secured temporary reprieves, delaying their tariff increases until November. Others, like Canada, received no such pause.

• Vietnam emerges as the most affected country due to its high tariff rate and extensive trade ties with the U.S.
• Mexico follows closely, though its impact is softened by the growing number of goods qualifying for exemptions under the U.S.-Mexico-Canada Agreement (USMCA).
• Other significantly impacted nations include Thailand, Malaysia, Taiwan, South Korea, China, and Canada. For Canada and Mexico, the critical question is whether USMCA-compliant products will maintain their tariff exemptions, as this will determine the extent of their economic challenges.

However, as you can see by the difference between the blue and yellow lines in the chart above, a notable discrepancy exists between the theoretical and actual tariff rates collected by the U.S. government. As of June 2025, actual revenue fell significantly short of expectations, with a 5% difference.

 

This gap can be attributed to several factors:

• Substitution away from tariffed goods: High tariffs usually lead to reduced demand for affected products, lowering the realized trade-weighted tariff rate. However, this shift results in economic damage through decreased consumption and investment.
• Exemptions for goods in transit: Goods already en route when new tariffs are implemented are often exempt, creating a lag in tariff collection, particularly for shipments from China.
• Higher USMCA compliance: More products from Canada and Mexico are benefiting from tariff exemptions than initially anticipated, contributing to the lower realized tariff rate.
• Value-added auto exports: The effective tariff rate on vehicles imported from Mexico and Canada is lower than expected, with Canada's realized rate on vehicles being just 0.5% in June, compared to the anticipated 16%.
• Substitution toward temporarily non-tariffed goods: Imports from countries expected to face higher tariffs later, such as Taiwan, have surged due to front-loading, temporarily reducing the realized tariff rate.

This gap will be closely monitored in the coming months, assessing if the realized and theoretical tariff rates begin to converge. If this convergence is minimal, the economic damage from the tariffs may be less severe than currently forecast.

 

Are tariffs impacting inflation?

While other factors, such as a weaker U.S. dollar and lower oil prices are influencing inflation, we are starting to see the effect of tariffs on inflation. In July, core inflation rose by 0.32%, the quickest pace in six months, and is now above 3% for the first time since February at +3.1% year over year (YoY). Core goods inflation also accelerated to +1.2% YoY, the quickest in two years.

 

Source: BLS, Macrobond, RBC GAM. As of July 2025. Shaded area represents recession.

 

There’s been signs of tariff passthrough in trade-oriented products like furniture and recreational goods. Additionally, the fraction of businesses planning to raise prices has increased in 2025, though this unwound slightly in the latest month as tariff fears momentarily subsided.

 

Overall, tariffs are expected to contribute to a 1% increase in the overall U.S. consumer price level, with a few tenths of a percentage point already delivered.

 

Are tariffs here to stay?

While it's tempting to assume that President Trump's tariffs will disappear when a new president takes office in 2029, the reality is far more complex. Inertia in public policy, the growing dependence of certain companies on these tariffs, the government's potential reliance on tariff revenue, and the shifting political landscape all suggest that a complete reversal isn’t guaranteed. The tariffs could potentially persist after Trump’s term, at least partially, impacting businesses that must decide whether to adapt or wait for potential changes, with potential consequences for the U.S. and global economy.

 

For a detailed examination of the current macroeconomic climate and comprehensive commentary on tariffs and the broader economy, Eric Lascelles, Managing Director and Chief Economist, provides his insights in the latest edition of #MacroMemo here.

 

In the Community

Thank you to those who have already donated!

We are joining the RBC Race for the Kids again this year and running the event locally on September 22. This race is to help Sunnybrook’s Family Navigation Project for youth with mental health problems.

For those wishing to sponsor – here is the link and anyone who wants to come out and walk or run with me, please contact me for meeting location and time.

2025 RBC Race for the Kids Toronto RBC Silo: Ms. Karen Robertson - RBC Race for the Kids

 

Team News

Our office and the markets are closed on Monday September 3 for Labour Day and Kim is off on Tuesday September 4 for back to school day. I will be in office.

 

Enjoy your Labour Day long weekend!