Global Asset Allocation Team Market Update – March 2025

Global equity markets generated some mixed results in February. The MSCI All Country World declined -0.7%. The S&P 500 fell -1.4%, with the heavyweight “magnificent 7” tumbling nearly 9% as elevated valuations came up against lofty expectations for future growth. The S&P/TSX (-0.5%) also edged lower, albeit to a lesser extent following a run of solid earnings results from the big Canadian banks. By contrast, the MSCI EAFE jumped +1.8% – while the MSCI gauge of emerging market stocks (+0.4%) rose on the back of an impressive (+11.8%) gain in Chinese stocks stemming from enthusiasm around tech after the arrival of DeepSeek’s low-cost AI model.

Fixed income markets generated positive results as investors fled to the safety of bonds, with investors bracing for the impacts of lingering trade tensions on growth. Indeed, speculation mounted that the Federal Reserve will soon need to pivot from worrying about sticky inflation towards fretting about a stagnating economy. The 10-year treasury yield tumbled to a new year-to-date low of 4.21% – while the policy-sensitive 2-year yield fell to 3.99%, with markets now pricing 2.5 rate cuts in 2025 versus just 1 in mid-February. Similarly in Canada, fears about US tariffs pushed government bond yields broadly lower even as both growth and inflation surprised to the upside. Indeed, following tariff announcements in early March, traders moved to price in a 95% chance of a rate cut at next Bank of Canada gathering. For the month, the Bloomberg US Aggregate Bond Index rose 2.2%, while the FTSE Canada Bond Universe gained 1.1%.

In currency markets, the US dollar slipped as expectations for fed fund rate cuts were revitalized last month – while the Canadian dollar advanced to end the month just shy of the 70 US cent mark.

Finally, oil edged lower as investors braced for the fallout from a trade war that risks weighing on global demand. By contrast, gold extended its winning streak driven by haven demand stemming from unrelenting geopolitical tensions and concerns about the economic outlook.

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