Second Quarter
The first half of the year has been tumultuous for equity markets. Initial optimism surrounding tax cuts and deregulation under President Trump 2.0 quickly gave way to concerns over his forthcoming trade policies. However, a later announcement of a 90-day pause on many of the proposed tariffs provided some relief, and equity markets bounced back as a result in the second quarter. The Canadian S&P/TSX index posted a solid 7.8% gain for the quarter while the US S&P 500 index gained 10.6%. Year to date, the Canadian equity market remains ahead, up 8.6%, while its US counterpart is up a more modest 5.5%, in local currency terms. With the U.S. dollar under pressure during the quarter, it has dampened U.S. returns for Canadian investors when translated to Canadian dollars.
For the second consecutive meeting, the Bank of Canada (BoC) held its key overnight lending rate unchanged at 2.75%, following a series of rate cuts from a peak of 5% over the past year. According to our economist, the BoC’s accompanying statement suggests a cautious stance toward additional cuts. In the United States, the Federal Reserve held its policy rate steady at 4.25% to 4.50% for the fourth consecutive meeting, despite mounting political pressure from the White House. The Fed signaled that it may remain on hold for a while longer, as it seeks to balance the risks of slower growth against those of persistent inflation. The Fed’s stance implies that it is prepared to ease if growth slows significantly, but that it will remain cautious if inflation remains elevated.
The Model Portfolio increased 2.7% in the second quarter and is up 3.8% in the first half of 2025. While we outperformed during the market decline in the first quarter, we gave up some of that relative advantage as markets rallied in second quarter, bringing us broadly in line with the balanced benchmark year to date. During the quarter, we sold our position in Bell Canada (BCE) and initiated a new position in CGI Inc. (GIB.A). This move reduces our exposure to traditional telecom and increases our allocation to Information Technology services and consulting.
As of July 1st, 2025 Quebec’s new family law Bill 56 is now in effect. When de facto spouses—defined by the new Act as two individuals who share a community of life1 and publicly represent themselves as a couple, regardless of the duration—become parents of the same child, born or adopted after June 29, 2025, a parental union regime will automatically be created from the birth (or adoption) of the child.
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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