June Market Commentary | Growth on Borrowed Time?

Nicola Wealth Market View

Markets continued to move higher in June, despite rising fiscal strain, geopolitical tension, and persistent inflation risks. Canadian equities outperformed U.S. peers year-to-date, while bond markets reacted to shifting interest rate expectations and the growing weight of sovereign debt. The disconnect between macro uncertainty and equity performance is becoming more pronounced.

In this type of environment, maintaining balance becomes increasingly important. Rather than react to short-term developments, Nicola Wealth’s investment approach emphasizes broad diversification across asset classes and strategies, with a focus on reducing concentration risk. This includes exposure to private assets and alternative income strategies, which may behave differently than traditional equities and fixed income in periods of stress.

This approach is designed not to predict what happens next, but to help prepare for it. In an environment where risks are harder to quantify and outcomes remain uncertain, staying broadly invested and structurally diversified remains the best line of defense.

To explore how our private investments contribute to this strategy, read:

• Private Credit Resilience in Uncertain Times: The Impact of Tariffs
  How disciplined underwriting and senior lending can offer downside protection amid global uncertainty.
• From Startups to Buyouts: Navigating Risk and Return Across the Private Equity Spectrum
  We explore the three core pillars of private equity and how diversification across these strategies may support long-term resilience.

To complement these broader themes, below is a condensed version of Chief Economist Rob Edel’s Market Commentary, offering key highlights from May’s market activity. To read the full commentary, click here.

Markets are looking through geopolitical risk

Israel’s military strike on Iran’s nuclear infrastructure and the swift retaliation that followed made for a tense start to the month. Yet markets hardly flinched. Gold stayed flat, bond yields were steady, and the U.S. dollar continued its recent decline. While oil prices briefly spiked, they quickly reversed course. 

History supports this reaction. As Strategas notes, the S&P 500 is rarely down six months after major U.S. military action. Unless conflict escalates dramatically, market participants seem more focused on domestic policy and economic data. 

Tariffs are front of mind, but not halting the rally

Tariff concerns remain elevated, but markets appear to be taking them in stride. By the end of June, the S&P 500 surged nearly 25% off its April lows, ending the quarter up 10.6%, one of the strongest quarters on record, according to Carson Investment Research. Canadian equities outpaced U.S. markets in the first half of the year, particularly in common currency terms. While tariffs remain a source of uncertainty, investors appear increasingly comfortable navigating around them. 

Fiscal policy shifts into overdrive

July marked the passage of President Trump’s One Big Beautiful Bill Act (OBBBA), which extended the 2017 tax cuts and introduced additional spending. The White House anticipates meaningful economic growth as a result. However, the Congressional Budget Office estimates the bill will add more than $3 trillion to the national debt by 2034. Goldman Sachs notes that U.S. deficits are now rising even in periods of low unemployment, a shift from historical patterns that may affect how bond markets respond going forward. 

The Fed remains the wild card

While President Trump continues to call for lower rates, the Federal Reserve remains independent and cautious. Inflation hasn’t accelerated significantly, and current economic indicators, such as the outperformance of cyclical sectors, don’t align with typical rate-cutting environments. Bloomberg data ahead of the July FOMC meeting showed Powell near the median of the committee, with no members projecting aggressive rate cuts. Even if a new chair is appointed in 2026, the broader committee will likely shape the policy path. 

Valuations are high, uncertainty is higher

Risk assets are pricing in a near-perfect scenario: stable growth, easing inflation, and eventual rate cuts. But headwinds remain. The long-term effects of tariffs, rising debt service costs, and potential political risks, such as a politicized Fed, could challenge this optimism. 

Goldman Sachs warns that equities and credit are both priced as if we are in a Goldilocks environment. Given the number of variables still in play, we believe a more cautious approach is warranted. When valuations are elevated and policy uncertainty remains high, a focus on quality, risk management, and active oversight becomes increasingly valuable. 

This is a condensed version of Rob Edel’s Market Commentary. To read the full version, click here.