July 22, 2025
Equities Outlook: Diversification Matters Amid Volatility
Market Review and Q3 Outlook
KEY SUMMARY POINTS
- Easing geopolitical tensions and fiscal stimulus in Europe offer cautious optimism for global equities.
- U.S. tech and Canadian commodities are rebounding, while Europe shows improving macroeconomic and earnings visibility.
- Emerging markets remain attractively valued; global diversification and discernment are key in a volatile policy environment.
Global equity markets remain at a crossroads shaped by policy uncertainty, geopolitical developments, and shifting economic fundamentals. While volatility persists, the potential resolution of several major geopolitical conflicts, along with signs of fiscal and monetary support in key regions, offers cautious optimism for investors.
GEOPOLITICAL TENSIONS: A TURNING POINT?
After a turbulent first half of the year, signs are emerging that geopolitical risk could ease in the coming months. Quiet but meaningful diplomatic advances suggest potential de-escalation in both the Russia-Ukraine conflict and broader Middle East tensions, particularly between Israel and Iran. A resolution—or even a sustained ceasefire—could bring welcome stability to global energy markets and overall risk sentiment, which may serve as a tailwind for equities across regions.
However, risks remain. Trade tensions between the U.S. and its major partners—especially China and the European Union (EU)—are expected to continue. The Trump administration’s continued use of tariffs as a bargaining tool, particularly around strategic technologies, is likely to create short-term uncertainty. Retaliatory measures from China or increased friction with the EU could weigh on global manufacturing and technology supply chains. We expect tariffs to remain a headline risk throughout the third quarter, potentially dampening investor confidence in export-oriented sectors.
POLICY SUPPORT IN EUROPE AND BEYOND
Amid sluggish growth and mounting pressure to increase defence spending, several European governments are pivoting toward pro-growth policies. Both Germany and France have introduced fiscal stimulus packages targeting infrastructure, defence, and green energy. These measures, combined with a more accommodative stance from the European Central Bank, are improving the outlook for the eurozone. Lower rates and stimulus in Europe may boost to equity valuations, particularly in cyclical sectors such as industrials, construction, and consumer discretionary. Greater earnings visibility and relative political stability are likely to support continued market improvement.
REGIONAL OUTLOOKS
United States
U.S. equities have remained resilient, supported by a stable labour market and steady consumer spending. The S&P 500 Index has fully rebounded from its correction following Trump’s tariff announcement on Liberation Day. Optimism has returned to the technology sector, with continued spending and investment in AI contributing to the market reaching an all-time high.
Canada
Canadian equities have benefited from a rebound in energy prices and improving sentiment across the commodities complex, pushing the TSX to new highs. The Bank of Canada’s cautious rate-cutting cycle is expected to support domestic growth and could help boost housing activity and consumer spending. Any de-escalation in conflict in the Middle East would bring stability to energy markets and could further lift demand for Canadian exports and resources.
Europe
Heading into the second half of the year, European equities stand out as a potential bright spot. With inflation and interest rates trending lower and stimulus programs beginning to take effect, the region could finally break out of its low-growth pattern. Barring renewed conflict, tariff escalation, or a sharp rise in energy prices, we anticipate continued improvement, particularly in Germany, France, and the Nordics.
China
In the second half of 2025, China’s slowing growth momentum warrants close monitoring. Exports and consumer spending are expected to ease following a surge in exports ahead of potential U.S. tariff hikes. Domestically, consumer support programs were scaled back late in the second quarter and are unlikely to be renewed in the third quarter of 2025. On a more positive note, the multi-year housing market downturn and deflationary pressures are bottoming out. From an investment perspective, several industry trends—such as “new” consumption (i.e. millennial-driven spending), travel, and continued investment in AI and cloud computing—remain strong.
Emerging Markets
Diversification away from the United States, relatively light positioning in emerging markets, and attractive valuations bode well for continued outperformance of emerging markets relative to the U.S. in the second half of the year.
CONCLUSION
The third quarter presents a cautiously optimistic backdrop for global equities. The easing of some geopolitical risks, combined with more dovish central bank policies and fiscal expansion in Europe, may support a constructive tone for markets. However, ongoing tariff disputes, lingering inflation pressures, and political uncertainty—especially in the U.S.—mean that investors should remain selective and diversified. We continue to recommend a balanced global allocation, with a tilt toward regions benefiting from policy support (Europe), stable commodities exposure (Canada), and structural innovation (select sectors in the U.S. and China). Risk management and attention to valuation remain critical as we navigate this transitional phase of the global cycle.
RELATIVE VALUATIONS
Source: Datastream, Worldscope, Goldman Sachs Global Investment Research.
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About the Author
Peter Hofstra, Senior Vice President, Co-Head of Equities – Research, and Portfolio Manager, brings a depth of experience in both investment and company management to the Equities team. Peter joined CI GAM in 2017 as Senior Portfolio Manager. Immediately before joining CI GAM, he was Chief Investment Officer and Managing Director of Investment Research at Manitou Investment Management, a firm that focuses on private client and institutional money management. He also co-founded a clean technology investment LP, which Manitou acquired. Prior to Manitou, Peter was a portfolio manager at a large mutual fund company where he co-managed a U.S. equity fund and was lead manager of a science and technology fund. Prior to starting his investment career, Peter helped build a technology firm, which went public and where he held the position of VP of Research and Development and was an officer of the company. Peter holds the CFA designation and has a B.Sc. in Chemistry and a Ph.D. in Engineering Physics.
About the Author
Robert joined CI Global Asset Management in 2011 and began his career in the investment industry in 1983. He is the portfolio manager of the CI International Equity Growth Private Pool and is the lead portfolio manager of CI Canadian Asset Allocation and CI Global Equity & Income. Prior to joining CI, Robert was lead manager of several mutual funds at Fidelity Investments with combined assets under management exceeding $20 billion. Robert holds a Bachelor of Science in Finance from Northern Illinois University, an MBA from Northwestern University and the Chartered Financial Analyst (CFA) designation.
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