Overview of the Quarter

The third quarter of 2025 featured several key themes and trends that dominated headlines across North America. Both Canada and the US saw their central banks cutting policy interest rates, driven by uncertainty surrounding economic growth and weakening labour markets. Canadian unemployment rose to 7.1%, the highest level since 2021, whereas the US unemployment rate remained lower from a historical perspective at 4.3%. However, with the ongoing US government shutdown, future economic data reliability may be in question for the time being.

AI companies saw massive valuations across the venture capital space. 46% ($45 billion USD) of all venture capital deals in Q3 2025 were for AI-driven companies. Giants like OpenAI, TSMC and AMD saw either massive demand or major partnerships with existing large-cap tech companies. AMD and Oracle announced a major expansion of their collaboration for a new AI supercluster powered by AMD GPUs.

Gold touched new all-time highs throughout the quarter, rising to $3,859 per ounce by the end of September. This represents an increase of over 47% since the beginning of 2025 and is on the back of a notable increase in central bank buying of physical gold for reserves.

Overall, the markets saw positive growth, with the S&P/TSX Composite TR Index and S&P 500 TR ($CAD) Index showing exceptional growth of 12.5% and 10.5% respectively.

Major Market Indices (CAD)

Total Returns

Macroeconomic Trends Q3

The most notable macroeconomic trend during the third quarter was the resilience of global growth despite headwinds from tariffs and trade policy turbulence. This was especially notable in the US, where the economy expanded 3.8% on an annualized basis during the second quarter, outpacing its developed peers. Growth globally has been stronger than expected, prompting the OECD to revise its projection for 2025 upwards to 3.2% from 2.9%.

The Bank of Canada (BoC) continued to cut its policy rate in September by 0.25% after being on hold since cutting in March amid concerns surrounding tariff-induced inflation. Meanwhile, after being the lone holdout and keeping its policy rate among the highest in the world since late 2024, the Federal Reserve (Fed) delivered a much anticipated 0.25% cut at its September meeting. The Fed's reluctance to cut was based on a strong labour market and concerns surrounding tariff-induced inflation. These concerns were somewhat abated, as the US labour market has started to show signs of stress, although inflation still remains above target. The slowing of US rate cuts has led to the largest policy rate gap between the US and Canada since 1997.

The key event of Q3 was the Fed's pivot to a rate cut in September, driven by concerns over a weakening labour market, which marked a shift away from restrictive policy. This move sparked some market volatility as investors debated whether the economy was weak enough to justify the cut. Ultimately, mixed economic signals and a government shutdown affirmed the pivot, setting the stage for the next quarter.

Equity markets continued to rally worldwide over the quarter, with major indices, especially in North America, repeatedly hitting new highs. The anticipation and eventual realization of a more accommodative monetary policy fueled the rally, but the reasons for robust equity performance differed by region. All major equity markets are seeing double-digit growth on a year-to-date basis, furthered by a strong September, which saw essentially all asset classes gain during a month that is historically seen as volatile for investors. 

Stocks in the US continued to be driven largely by the largest names in the market, but there was some evidence that ‘a rising tide lifts all boats’. The Russell 2000, a key index for smaller companies, hit a new all-time high for the first time in four years at the end of September. The drivers were different within Canada, where the market as a whole was propelled by gold stocks and banks. As gold rose more than 47% year-to-date, the materials sector alone rose over 78% during the same period, with gold stocks accounting for just under 40% of the TSX’s performance. 

How our fund strategies performed

We saw strong performance across all ATB Compass Portfolios in Q3 2025, ranging from 2.4% to 5.83% in the Compass Conservative and Compass Maximum Growth portfolios respectively. Our ATBIS Pools mirrored this, posting exceptionally strong performance in our ATBIS US Equity Pool at 7.39%, with modest but positive growth in our ATBIS Fixed Income Pool at 1.96%. These strong results can be traced back to our Multi-Asset Strategy (MAS) team’s tactical allocations with a bias towards equities, specifically US equities, and a slight tilt away from fixed income in general.

Compass Portfolio Returns, Series O

Total Returns

ATBIS Pool Returns, Series O

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Portfolio positioning - Multi-Asset Strategy view Q3

In Q3, our MAS team remained bullish on equities, particularly in the US equity space. This confidence was driven by strong earnings growth across the US market, highlighting the resilience of American consumer spending and corporate earnings amid cost headwinds from tariffs.

This slight overweighting in equities was offset by a continued underweighting in the fixed income space, highlighted by their lower duration calls, effectively lowering the interest rate sensitivity of the fixed income portfolios. With the BoC cutting interest rates, short-term bond maturities fell, while the yields on longer-term maturities rose. This disconnect suggests that the market believes inflation will remain higher in the long term. As the majority of corporate bonds fall in the middle of these two ends of the spectrum, they have seen boosted performance along with the existing short-term bonds in our portfolio.

For further insight from our MAS team, please refer to their Q3 2025 Quarterly commentary.