August 28, 2025
Looking Beyond the Noise
Sometimes it is important to take a step back from the daily headlines and market gyrations to focus on the broader context. As we close out the summer, this feels like one of those moments. The economic backdrop has clearly shifted toward a slower pace of growth, and while that outcome was expected, the path forward remains unclear. Inflationary pressures have been uneven, financial conditions are evolving, and policy changes in the months ahead could alter the trajectory. In other words, the story is still unfolding but the outlook is far from catastrophic, financial markets are telling us as much.
Inflation has proven sticky, and over the summer the U.S. saw an uptick in producer prices, including wholesale margins, reflecting tariff-related pass-through. These developments could temporarily push inflation higher, but they do not yet represent entrenched or runaway price pressures. The labour market has also cooled from its earlier strength, with slower hiring and fewer job openings, but importantly, it has not shifted into broad-based layoffs. Growth is slowing, not stalling, and inflation, while above long-run norms, remains within sight of the Fed’s target. While the risk of higher tariffs feeding through to consumer prices is real, the U.S. economy is better described as undergoing a measured and controlled slowdown rather than a slide into stagflation or outright contraction.
On trade, details of the EU/US framework announced on August 21 is a reminder that while tariffs will be higher than in the past, global trade is not dead. Flows will continue, frictions will arise, and disputes will be resolved. The global system adjusts; it does not grind to a halt.
Bond markets are also adjusting to this evolving economic outlook. The yield curve has begun to steepen, which some interpret as a warning signal. In reality, steepening is a normal feature of the cycle ahead of Federal Reserve easing; short-term yields fall as rate cuts are priced in, while longer yields are steadied by growth and inflation expectations. This is part of the process of policy transition, not evidence of systemic stress.
Equity markets deserve a more cautious assessment. Global equity markets have recovered from the early April trade tariff inspired drawdown and are near all-time highs. The S&P 500 has been driven heavily by the strength of the technology sector, where valuations look stretched against historic norms. At the same time, earnings and margins in these companies remain very strong, which complicates the narrative. On an equal-weighted basis, the S&P does not look nearly as extended. It is not cheap, but valuations are not at extremes either, underscoring both the concentration risk at the index level and the resilience in corporate fundamentals beneath the surface. Earnings, which underpin long-term performance, remain solid.
The current environment reflects a period of moderation, with slower but still positive growth and sticky yet manageable inflation. While the near-term outlook carries its share of risks, the long-term investment horizon remains compelling.
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About the Author
Lorne Gavsie is Senior Vice-President and Head of Macroeconomic & FX Strategy at CI Global Asset Management. In his role, he is responsible for leading a dedicated macroeconomic and FX effort, harnessing the global expertise and knowledge across CI GAM, producing insights to be leveraged for investment purposes and providing our clients with timely and valuable insights. He is also responsible for CI GAM’s currency overlay and hedging strategies. Lorne brings over 25 years of experience in the industry, specializing in currencies, trading and global markets.
Prior to joining CI GAM in 2015, Lorne held various roles with major Canadian banks including Managing Director, FX Europe based in London, England and Global Head, E-FX based in Toronto.
Lorne holds an MBA from the London School of Economics & Politics, HEC Paris and NYU Stern (collectively known as TRIUM) and is a member of the Bank of Canada’s Canadian Foreign Exchange Committee (CFEC).
About the Author
Neil Shankar is CI Global Asset Management’s Economist, responsible for monitoring key macroeconomic trends and shaping CI GAM’s economic outlook. He actively participates in investment and asset allocation discussions, helping guide decision-making.
A leading contributor to CI GAM’s Capital Insights publication, Neil shares in-depth perspectives on evolving economic conditions. He also frequently engages with stakeholders throughout the organization and externally, helping to deepen understanding of the economic landscape. He is regularly quoted in the press for his views on the economy and markets.
With over 10 years of industry experience, Neil joined CI GAM in 2024 after holding similar roles at other major Canadian financial institutions. Neil holds an MA in Business Economics from Wilfrid Laurier University and a BA (Honours) in Economics from The University of Western Ontario.
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