Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and powered by Canada Life. For today’s Soundbites, Corrado Tiralongo, chief investment officer with Canada Life, offers an economic review as we approach Q4. We talked about winners, losers, opportunities and risks. And we started by asking about how the Canadian economy has fared so far this year.
Corrado Tiralongo (CT): The Canadian economy is fragile. Growth turned negative in the spring and is struggling to gain traction. Consumers are still spending, but that support looks temporary. Businesses remain cautious. Exports are under pressure, and unemployment is climbing towards 7.5%. Even housing, which held up earlier, is losing steam. It is a fragile time. This current cycle is unusual in the fact that the U.S. is powering ahead while its peers struggle to regain momentum. For a long period of time, we felt the Canadian economy would enter a mild recession, and that looks like the pace and the direction that we’re going to.
The outlook for Bank of Canada policy
CT: Our baseline remains two cuts for this year, one probably in October versus December. In our mind, inflation has cooled. Tariffs have been rolled back, and that gives policy makers some room to ease. But we don’t feel that they’re going to do so in a dramatic fashion. We believe that most likely the path is going to be a steady one [with] gradual reduction in rates. But if the slowdown deepens, the Bank of Canada will have to go further.
The health of the U.S. economy
CT: The jobs data has been revised down sharply, which makes the labour market look weaker. But on the activity side of the economy, the consumer’s holding up. GDP grew more than 3% in the spring, and is tracking close to that pace again. Personal income, sales and production are all trending in the right direction. That suggests productivity is improving, which on the margin is being helped by AI-related investment. The risk is that slower hiring eventually feeds into weaker spending, creating a negative feedback loop. But that’s not our base case today.
Global labour markets
CT: Hiring is slowing across most developed economies, but the picture is rather uneven. In the U.S., the job market has softened, yet GDP, incomes and production remain solid. Productivity is improving, helped by investment in AI. So our base case is that the U.S. avoids a recession. Canada, Europe and the U.K., however, look more vulnerable. Globally, the combination of slower hiring, trade uncertainty and weak business investment means recession risks are elevated, particularly in Canada, the U.K. and parts of the Eurozone.
The outlook for commodities
CT: Gold has been the standout, climbing above $3,500 an ounce as investors seek safety and central banks keep buying. Oil, on the other hand, has shrugged off geopolitical risks. The reason is supply. OPEC+ is pumping more to protect its share of the market, leaving oil well supplied. That should push down Brent to around $60 a barrel next year. Food prices are mixed. Grains are drifting lower, but coffee is spiking due to a drought in Brazil.
How financial markets are responding
CT: Well, markets are already pricing in easier policy from the Bank of Canada. Bond yields have moved lower and the Canadian dollar has slipped to around US$0.72. In the U.S., the outlook for equities remains positive. We forecast the S&P to be around 6750 by the end of 2025, and 7250 in 2026, supported by resilient earnings and enthusiasm for AI. There are risks around the margins and whether the AI boom delivers, but for now big tech remains strong. Outside the U.S, non-U.S. equities are increasingly attractive. Valuations are cheaper, and some markets are benefiting from trade rerouting. That makes them a useful diversifier for investors who want to reduce reliance on U.S. tech. Emerging markets are more of a mixed bag. Tariff-related shifts may provide some support. But broader outperformance of EM equities is unlikely to return soon. Weaker global growth, trade uncertainty and tighter financial conditions are headwinds for both EM equities and bonds. Back at home, the TSX has outperformed the S&P 500 this year, driven by resources and financials. It shows that even in a weaker domestic economy, sector-specific strength can carry markets. Taken together, the picture is one where lower rates are supporting bonds, currencies are adjusting, and equities are finding selective areas of strength across regions.
And finally, his outlook for the economy and markets over the next year
CT: We see fragile progress. In Canada, growth will remain weak. Rate cuts will help, but they won’t fully offset the weak exports and investment. In the U.S., growth is slowing, but still positive. For investors, it means slower growth and more uncertainty, but also opportunities in diversified, balanced portfolios. We don’t see things being dire, but growth is slowing. And growth will remain low across the globe. This is not the time for investors to double down on risk. Start to be more cautious. It’s fine to have exposure to the U.S. I think you need to have exposure to the U.S. There are other markets that probably will not do as well as the U.S., but you need to have a presence in them, and you need to build a presence, because at some point investors’ attention will move in that direction.
Well, those are today’s Soundbites, brought to you by Investment Executive and powered by Canada Life. Our thanks again to Corrado Tiralongo of Canada Life. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.
**
Go back to the article.