Monthly Report: Oct 2025

A few topics our newsletter touches on this month:

• Our Thoughts: Eyes on interest rates
• By the numbers: September
• Other Things: Global Insight Monthly, 10 Minute Take podcast on International Trade and Rate Cuts

 

Monthly Snap for Oct: (top) RBC Regional President for Ontario North & East Devinder Gill presenting the cheque for over $1M to CHEO. (bottom) Peter, Sarah, Mark (with grandson on shoulders) and other members of the Bells Corners DS branch after the race.

Coming up: Invitation for local clients to a night at the OCan Film Festival on Nov 7, 2025. Please see separate invite e-mail to RSVP or reach out to Nathalie directly.

Our Thoughts: U.S. Government Shutdown as Carney Goes to Washington

The U.S. federal government began a partial shutdown last week. While notable, the impact of these shutdowns on the economy and financial markets have typically been modest. Political developments such as these often generate headlines and can induce some short-term volatility, but history suggests their impact tends to be transitory. We discuss this and more below.

What’s going on?

Funding covering roughly a quarter of the budget for the U.S. federal government expired on October 1^st, causing a partial shutdown that will disrupt a range of government services and the furlough of many federal workers. This is a storyline we’ve seen before, as partisan divisions once again drove a standoff over a budget agreement. Republicans are pursuing a narrower spending bill, while Democrats are seeking an extension of healthcare subsidies and a reversal of recent cuts to healthcare programs. Negotiations are reportedly ongoing, but it’s difficult to gauge what a final resolution will look like or when one will arrive.

Importantly, not all federal services “shut down”. Essential operations, including Treasury payments and mandatory spending programs like Social Security, continue uninterrupted. Federal workers, however, are typically placed on temporary leave and receive backpay when government financing is restored.

Economic and market implications

U.S. government shutdowns vary in length, often producing some near-term turbulence. Historical episodes show that U.S. stocks tend to weaken just before, during, and shortly after it ends. However, because most shutdowns do not last very long, the equity market impact is typically short-lived, with stocks usually regaining lost ground soon thereafter.

For the economy, U.S. government shutdowns can temporarily weigh on growth, but they have historically not been significant enough to derail ongoing expansions. The economy typically recovered briskly after a resolution. However, this shutdown comes at a more delicate time. The U.S. labour market has recently shown signs of softness, and President Trump’s proposed plans to dismiss federal workers during the shutdown add another layer of uncertainty. Moreover, the suspension of key economic reports, such as the monthly employment report, makes it harder for both policymakers and investors to assess economic conditions. Notably, the delay of major economic data makes the job of the U.S. central bank more challenging in the near-term as policymakers evaluate whether further interest rate cuts are warranted to support the economy.

Canadian roundup

North of the border, recent data suggests the Canadian economy is holding up despite persistent trade-related disruptions that have weighed on exports, business investment, and overall growth. Canadian GDP rebounded in July from a spell of recent weakness and RBC Economics now forecasts a modest expansion in the third quarter. Sentiment has also perked up, with strong equity market performance helping to lift household net worth in the second quarter, while softening home prices and lower interest rates have eased housing affordability pressures. Prime Minister Mark Carney is in Washington today for high level talks with Donald Trump. We will keep our eyes peeled for news on that front (a good primer ahead of that meeting was in the Globe this morning).

Takeaway

U.S. government shutdowns are not unusual. There have been 20 such episodes since 1976, according to RBC Economics, with most of them resolved in under ten days. While they can create short-term downside volatility, they have generally not been meaningful drivers for financial markets or the economy. We are closely watching labour market conditions, but in our view, U.S. government shutdowns are not a reason to change portfolio strategy.

Should you have any questions, please feel free to reach out.

By the numbers (Sept):

The TSX was up 5.4% while the S&P 500 was up 3.6% in U.S. dollars (up 5% in $CAD). The Europe, Australia & Far East index (EAFE) was up 2.9%, while the Emerging Markets index rose 8.3%. The Canadian bond market was up 1.9%.

Interesting Listening/Reading:

• To check out our Global Insight Monthly for Sept find the link here.
• Check out the latest 2 episodes of the 10 Minute Take podcast from RBC economics, which focused on some really timely & interesting topics: Sept 18^th episode on the future actions of the Fed and BoC, and the Oct 1^st episode on International Trade 101 (Canada focus).

Regards,

Mark, Peter, Sarah, Corinne & Nathalie

Gallivan Wealth Management of RBC Dominion Securities

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