Third Quarter
Year to date, investors have had much to be encouraged by. Despite ongoing political uncertainty, equity markets have delivered strong returns, and the global economy has demonstrated remarkable resilience. In the third quarter, the Canadian S&P/TSX Composite Index rose 11.8%, continuing to outperform major U.S. benchmarks, including the S&P 500 (+7.8%), Dow Jones Industrial Average (+5.2%), and NASDAQ (+11.2%). In Europe, the DAX Index was marginally negative at -0.1% for the quarter, but remains up 19.9% year-to-date, reflecting ongoing strength in industrial and export-driven sectors.
The concerns regarding the inflationary impact of tariffs have not resulted in a sustained rebound in inflation, enabling central banks to begin easing interest rates. As anticipated, both the Bank of Canada (BoC) and the Federal Reserve reduced their overnight lending rates by 25 basis points, bringing the BoC to 2.50% and the Fed to a range of 4.00%–4.25%. Notably, the BoC did not signal further easing, suggesting that an additional rate cut in October is unlikely unless economic weakness and disinflation persist. However, our economists expect further easing before spring 2026.
The Model Portfolio increased by 4% in the third quarter and is up 8.0% year to date, marking the third consecutive year of strong portfolio returns. While absolute performance remains attractive, we are currently trailing our balanced benchmark by approximately 200 basis points. The environment continues to be challenging for active managers, particularly those who have chosen to diverge from index-heavy positioning. Looking ahead, equity markets face valuation and concentration risks, and investors may need to broaden their focus beyond the concentrated group of stocks that have led market performance in recent years—a situation for which we believe our clients portfolios are well prepared. Within our Model Portfolio and for clients, we took our profit in SAP and have been trimming equity exposure in client accounts that are reaching the upper end of their targeted equity ranges.
As year end approaches, we encourage clients making important donations to consider using securities with significant embedded capital gains rather than cash. To receive your tax receipt for 2025, it is important those donations are received by the charities’ accounts prior to December 31. Investors may also want to review nonregistered investment accounts to offset any capital gains realized in the year – or in the three previous taxation years (if a net capital loss is created in the current year).
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Investment Checklist
1. Make 2025 RRSP contribution as soon as funds are available. The maximum is 18% of 2024’s earned income to a maximum of $32,490.
2. Make 2025 $7,000 TFSA contribution as soon as funds are available. The maximum if you have never contributed is $102,000.
3. Make $2,500 annual RESP contribution per child to benefit from the 30% combined government grants.
4. Take advantage of the new FHSA if you are looking to buy a house for the first time in the future
5. Review asset allocation to make sure it is in line with current objectives and risk tolerance and inform us of any special income need for this year.
The calculation of performance data set forth herein has been prepared by the author as of the date hereof and is subject to change without notice. The author makes every effort to ensure that the contents have been compiled or derived from sources believed to be reliable and contain information and opinions, which are accurate and complete. However, BMO Nesbitt Burns Inc. ("BMO NBI”) makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions which may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this report or its contents. Information may be available to BMO NBI or its affiliates that is not reflected herein. This report is prepared solely for information purposes. Please note that past performance is not necessarily an indicator of future performance. The indicated rates of return are gross of fees or commissions. Individual results of clients' portfolios may differ from that of the model portfolio as fees may differ, and performance of specific accounts is based on specific account investiture. The noted model portfolio portfolio may not be appropriate for all investors