Hello everyone,

June hasn't been a bunker buster, lol. However, the S&P500 is up 2.67% for the month of June versus the historical trend which has posted losses of 0.8% on average… so, we'll take it! The TSX also had similar returns, up 2.23%, just less than half of May's return of 5%. If we keep adding up these small gains, it's looking pretty good. The S&P500 has posted gains of 3.11% YTD and the TSX a whopping 9.01%, almost 3X's that of our U.S. counterparts…..seems to me, maybe "Elbows Up" is working…..ba ha ha ha…..Sorry folks, I just couldn't help myself on that one.

In all seriousness, the TSX has been nothing short of spectacular. The TSX has seen broad strength across most sectors in 2025. Defensive and rate sensitive sectors like Utilities and Industrials have performed well. Utilities have been highlighted for combining the benefits of both stocks and bonds, offering a unique diversification for investors seeking stability amid economic uncertainty. Meanwhile, Financials and Resources have benefited from the recent economic and geopolitical environment, despite the volatility in commodities.

Furthermore, monetary policy in Canada has been perceived as supportive, with the Bank of Canada pausing but preparing to potentially ease rates further due to persistent economic slack and rising unemployment. This has helped boost both sentiment and risk assets in Canada (https://ca.finance.yahoo.com/news/tsx-closer-index-nears-record-201948861.html).  However, Canada's recent election has ushered in policies designed to attract investment and private capital, leading to renewed optimism about domestic growth and stability. As such, global investors are rotating away from the U.S. drawn by Canada's perceived stability and the "opportunity to shine" in a risk-off environment (https://www.marketscreener.com/quote/stock/OPTIVA-INC-44965066/news/TSX-Closer-Second-Successive-Record-Close-Optiva-Up-More-Than-100-50229165/). Albeit government spending has slowed in the first quarter but Prime Minister Carney's commitment to rebuild and rearm Canada will increase spending and drive employment, further supporting the said above.  In fact, Canada hasn't been on a spending spree on defence like this since 1939.

Another reason why Canada's financial market is glimmering, is that the TSX began the year with more attractive relative valuations and better risk premia compared to the U.S. market. Higher dividend yields and less stretched valuations have offered a cushion, making Canadian equities more appealing (https://ca.marketscreener.com/quote/index/TSX-COMPOSITE-7454/news/TSX-Closer-The-Index-Drops-on-Weaker-Economic-Forecasts-as-the-BoC-Keeps-Rates-Steady-50160168/).

While both indices have grappled with volatile commodity prices, the TSX’s resource exposure has provided some tailwinds when global energy and material prices have surged. Additionally, Canada’s position in global energy security has been recognized as increasingly important, attracting renewed investor interest (https://ca.marketscreener.com/quote/index/S-P-GSCI-ENERGY-INDEX-46869254/news/TSX-Closer-The-Index-Posts-a-Modest-Gain-Amid-Bullish-Outlooks-For-Canada-s-Energy-and-Defense-Sect-50279043/).

However, all is not lost with our neighbors to the South. Although the U.S. market has not kept pace with Canada, it could be the story for the next half of the year. Amid softening earnings growth expectations and escalating geopolitical tensions, market strategist Max Kettner (chief multi-asset strategist at HSBC), worries that investors are not "bullish enough" on the current rally, saying he will remain risk-on as investors are underestimating the potential upside. Good news, no?

One of the primary reasons for Kettner's optimism is the low bar set by softening earnings growth expectations. With bottom-up Q2 earnings per share, (EPS) forecasts anticipating a sequential drop in S&P 500 earnings, companies may find it easier to exceed these conservative estimates. Kinda reminds me of the "under promise and over deliver" adage. This could potentially lead to positive surprises in upcoming earnings reports, bolstering stock prices and supporting the overall index. The market has demonstrated its ability to absorb and move past geopolitical tensions, as evidenced by its resilience in the face of recent attacks between Iran and Israel.

Moreover, Kettner downplays worries about the potential future effects of tariffs, suggesting that any fallout from trade tensions will likely be contained. He points to the possibility of the Federal Reserve stepping in to cut interest rates in response to a softening economy later in the year, a move that could mitigate any negative impacts from trade uncertainties. As it stands now, the street is all over the map on rate cuts. JP Morgan says one cut in 2025 and Citi Bank says three, while Fed Governor Waller says the central bank could cut rates as early as July. We'll see I guess; I know President Trump wants rate cuts, lol.

Federal Reserve Chair Jerome Powell, however, stated on Tuesday that it is currently premature for the Fed to contemplate lowering interest rates. In his prepared testimony for his semi-annual monetary policy report to Congress, Powell emphasized that policy changes are still unfolding and the impact of these changes on the economy remains uncertain. He mentioned that the Federal Reserve is in a position to wait and gather more information about the economy's likely trajectory before considering any adjustments to its policy stance. Despite some calls for lower borrowing costs from both Fed officials and President Donald Trump, Powell expressed caution in making any immediate changes to interest rates. He acknowledged that President Trump's tariffs are expected to affect the economy to some degree, although the full extent of this impact remains unclear. Powell's comments indicate a tempered approach by the Federal Reserve, emphasizing the need for a thorough understanding of economic conditions before any policy adjustments are made.

Considering all this, the outlook for the S&P500 for the rest of 2025 appears to be positive. Different sources provide different estimates for the index's performance by the end of the year. One forecast suggests that the S&P500 index may reach 6,447.42 by the end of 2025, with a further increase expected to 7,155.93 by the end of 2029 (https://longforecast.com/sp-500-index-forecast-2017-2018-2019). Another prediction from Goldman Sachs Research projects the S&P500 index to rise to 6,500 by the end of 2025, indicating a potential 9% price gain from its current level and a 10% total return, dividends included (https://www.goldmansachs.com/insights/articles/the-s-and-p-500-is-forecast-to-return-10-percent-in-2025).

This may sound too good to be true, but July historically has pumped out returns of 2% to the plus side since 2000 for the S&P500. Notable July gains include +7.56% in 2009, +7.01% in 2010, +3.72% in 2018, and +9.22% in 2022. There have also been some negative returns in July, such as -3.10% in 2007 and -7.80% in 2002, but positive returns are more common.

With that I'll bid you a farewell until next month! For those starting vacations or if you're permanently on vacation, lol… have a wonderful and relaxing time! Enjoy the sunshine, make happy memories, take time to unwind and recharge.