Market review
The North American equity market delivered strong growth in the third quarter of 2025. The market rebounded strongly from the second quarter of 2025, buoyed by the resilience of major technology companies, growth in artificial intelligence (AI) infrastructure, and stable corporate earnings. The Federal Reserve’s (Fed) decision to maintain interest rates, alongside indications of moderating inflation and a supportive risk appetite, contributed to broad-based gains across equities.
Investor optimism was further bolstered by improving economic indicators and a moderation in tariff pressures. US GDP growth for the first half of 2025 exceeded expectations, underpinned by strong consumer spending and a resilient labour market, which in turn supported earnings forecasts across various sectors.
Tariff tensions have played a significant role in shaping North American equity market dynamics throughout 2025 so far. The market responded swiftly to concerns over retaliatory trade measures and potential supply chain disruptions. However, the introduction of the ‘Liberation Day’ framework helped to ease tensions by mid-quarter, enabling markets to rebound rapidly as investors anticipated a less severe long-term impact, particularly for the technology and consumer discretionary sectors.
Nevertheless, market breadth remained uneven. However, despite headwinds from ongoing US-China trade uncertainties and a weakening dollar, investor sentiment remained robust, supported by better-than-expected earnings and continued share buybacks by major US corporations.
Fund activity
During the quarter, the fund achieved a positive return although it lagged the benchmark. From a sector perspective, the strongest contributions were from technology, consumer discretionary and consumer staples, although these gains were partially offset by weaker performance in financials and health care. At the stock level, overweight positions in BWX Technologies and Toll Brothers were among the largest contributors to relative performance, whilst Lululemon and Align Technology were the main detractors.
In terms of portfolio changes, we initiated a position in Rockwell Automation, an American provider of industrial automation and digital transformation technologies, and added new holdings in Marvell Technology and KKR.
We exited our position in Target Corp due to intensifying competition within the sector and the emergence of more attractive opportunities elsewhere. We also sold our holding in Edwards Lifesciences Corp, prompted by reduced diversification and declining profitability. In response to cyclical demand weakness and cost pressures, we exited Graphic Packaging.
Outlook
The outlook for the North American market is positive. Strong corporate earnings, easing inflation and stable monetary policy continue to provide a solid foundation for equities, with technology and financial sectors particularly well positioned to benefit. There is growing confidence that the market can navigate challenges related to trade policy and global growth, as recent resilience has demonstrated the ability to adapt to changing conditions.
With healthy consumer demand and ongoing innovation, we believe that there are abundant opportunities for investors across a range of sectors. Should the Fed adjust its policy, the market is expected to respond constructively, supported by robust fundamentals and a favourable economic environment. Furthermore, with Donald Trump signalling his intention to appoint a new Fed Chair who is likely to support his view that interest rates should be cut, there is potential for additional economic stimulus in 2026.
While valuations are somewhat elevated, history has shown that this has not been a reliable indicator of short-term market weakness. Overall, the North American equity market is, in our view, well-placed to build on recent gains and deliver further growth in the coming quarters.
Important Information
Past performance is not a guide to future performance. The value of investments may fall as well as rise and investors may not get back the amount invested. Income from investments may fluctuate. Currency fluctuations can also affect performance.
The views expressed in this document are those of the fund manager at the time of publication and should not be taken as advice, a forecast or a recommendation to buy or sell securities. These views are subject to change at any time without notice.
This document is issued for information only by Canada Life Asset Management. This document does not constitute a direct offer to anyone, or a solicitation by anyone, to subscribe for shares or buy units in fund(s). Subscription for shares and buying units in the fund(s) must only be made on the basis of the latest Prospectus and the Key Investor Information Document (KIID) available in the literature section.
