Lexicon Financial Group Weekly Update — August 13, 2025
“Thousands of experts study overbought indicators, head-and-shoulder patterns, put-call ratios, the Fed’s policy on money supply…and they can’t predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack.”
From the desk of Craig Swistun, CIM, MFA-P, Portfolio Manager, Raymond James Investment Counsel, and Wayne Hendry, Client Relationship Manager, Raymond James Investment Counsel
ISSUE 192
Looking Around
Remember the story about Goldilocks and the three bears? Ultimately, she found a bowl of porridge that was not too hot, not too cold, but “just right.” And, on the face of it, it may be what investors see as fitting for where the United States (U.S.) stock markets (and other major global markets) are currently, despite President Trump’s increasingly aggressive use of executive power when it comes to tariffs.
On Tuesday this week, major stock indexes hit fresh all-time highs, as investors digested an inflation report that was tamer than expected. The details of the report suggest an overall mixed picture for the economy but also showed that fears of large immediate price increases from Trump’s tariffs may be waning. Why? The rate of inflation for some goods exposed to tariffs rose in July but it was weaker for items like appliances and apparel. July’s heavier price increases were mainly found in service sectors like airfare and auto insurance rates.
Analysts at Goldman Sachs have estimated that consumers have been responsible for as much as 22 per cent of the cost increases with the percentage set to climb as the tariffs work their way more fully into the supply chain. Efforts by companies to stockpile goods ahead of the tariffs’ impacts, as well as summer discounts and ongoing tariff deadline extensions by Trump, have served to insulate the economic numbers from the effects of tariffs.
Tariffs continue to get negative reaction in surveys, with a mid-July Fox News poll showing Americans disapproved of Trump on tariffs by a 26-point margin. This is unchanged from April, when Trump revealed shocking new tariff levels in his Rose Garden “Liberation Day” speech. Stock markets, meanwhile, have continued to shrug them off. After this week’s inflation report, traders increased the odds of a rate cut by the Federal Reserve (Fed) at its next meeting in September. Looser financial conditions (that is, a lower interest rate) make it easier for businesses to borrow money and stocks tend to rise. Speculation is that much of this pressure is because if the Fed lowers interest rates, the cost of supporting the enormous U.S. federal government debt would also decline.
Trump’s focus on tariffs hasn’t abated but he has dialed them back slightly. With signs of the labour market beginning to shake, investors are more convinced that the Fed will err on the side of supporting the economy by lowering interest rates to support overall business activity.
However, the performance of the stock market itself isn’t a full picture of the broader economy. Instead, the gains of the S&P 500 and the Nasdaq increasingly reflect the outsized returns of a handful of tech companies (the so-called Magnificent Seven) that investors believe will reap massive gains from their investments in artificial intelligence technology. Raymond James Chief Economist Eugenio J. Alemán, mentions this in his report in the “Read and Watch” section.
According to the analysis from Morgan Stanley, at the end of July, just nine per cent of companies that make up the S&P 500 were at 52-week highs. This means that the index’s movements are significantly correlated with changes to the outlook of a handful of companies. If just one of them underperforms, it could negatively impact the market’s performance.(1)
Forecasts are predictions and, like past performance, is no guarantee of future results. If we see a surging concentration in one or two sectors, we take some profits and use them to diversify into other sectors, which either are oversold or appear to have the potential to grow. This is why we value diversification. Yes, you can make really large returns when you invest heavily in one sector but you can also experience substantial negative returns.
Read and Watch
Want deeper insight into topics in your Weekly Update? Then, read and/or right click:
Trump hiked Canada's tariff rate to 35%, but just who’s paying it remains a mystery
The AI spending boom could have real consequences for the U.S. economy
The US-EU trade agreement is not set in stone. This presents pitfalls and opportunities
Japan’s economy expands more than expected in second quarter as exports remain resilient
Video: China grapples with housing crisis as world watches on
Looking Back
The Canadian dollar steadied against its U.S. counterpart last Friday. It held on to a modest weekly gain, after softer-than-expected domestic jobs data had a limited impact on expectations for Bank of Canada (BoC) interest rate cuts. The Canadian economy shed 40,800 jobs in July. Economists had expected a gain of 13,500 jobs. This sent the share of people employed in the population to an eight-month low.
All 10 major sectors on the S&P/TSX composite index (TSX) ended lower last week, led by a 2.4 per cent decline for technology. Energy lost 1.9 per cent as worries about a possible increase in OPEC oil production weighed on the price of oil, which fell 2.8 per cent to $67.35 a barrel. Heavily weighted financials also lost 0.9 per cent. Investors see a 38 per cent chance that the Canadian central bank will lower its benchmark rate from the current level of 2.75 per cent in its upcoming September 17 policy announcement.
Although the trade deal with the U.S. remains the big risk on the horizon, it is not expected to be a ground-breaking factor for the economy or for the BoC when the majority of exports are USMCA-compliant, and more and more exporters continue to register as such every month. About 92 per cent of Canadian exports by value entered the U.S. market on a tariff-free basis in June under the U.S.-Mexico-Canada Agreement. (2)
U.S. equity indexes rebounded from the prior week’s sell-off and advanced last week. The technology-heavy Nasdaq Composite performed best – it ended the week at a record high. Numerous stock-specific headlines helped drive market sentiment during the week including the announcement by Apple that it would invest USD 100 billion—in addition to a previously announced USD 500 billion—in developing U.S.-based manufacturing over the next four years. Apple shares soared 13.3 per cent last week as this announcement will exempt Apple from the Trump administration’s steep tariffs on semiconductors.
The Trump administration’s new round of global tariffs came into being last Thursday. Market reaction to this was more muted compared with other recent tariff actions. On top of this, markets tracked by the CME FedWatch tool were indicating a roughly 90 per cent chance of the Fed lowering rates at its next meeting. A cut in interest rates is usually a boon for stock markets.
The pan-European STOXX Europe 600 Index rose 2.11 per cent last week on strong corporate earnings and hopes of a resolution of the Ukraine-Russia conflict. Other major European stock markets also rose due to strong retail sales and investor confidence data that added to signs of a resilient eurozone economy in the second quarter.
Japan’s stock markets ended up last week, mainly supported by investors’ positive response to strong corporate earnings. Trade developments were seen as favourable, despite some signs early in the week that Japan and the U.S. had differing interpretations of the July bilateral trade agreement. Markets and investors were reassured as the U.S. administration clarified that the 15 per cent tariff on Japanese exports to the U.S. would not stack on existing levies and that the tariff on autos would be reduced from 27.5 to 15 per cent.
Stock markets in China followed the global trend and rose for the week. This was attributed to trade data underscoring the strong global demand for Chinese products despite the U.S.-sparked trade war. Total exports in July surged a larger-than-expected 7.2 per cent from a year ago to USD 322 billion, according to data released by China’s customs authorities. Increased shipments to Europe, Southeast Asia, Australia, and other markets more than made up for the continued slump in U.S.-bound shipments, which shrank 22 per cent year on year in July after falling 16.1 per cent in June. It appears that Chinese companies have been able to compensate for the loss of U.S. business with increased sales to other markets. Weakness in China’s yuan currency, which fell against the U.S. dollar and other currencies in July, also boosted exports in July. However, China’s economy continues to struggle with sluggish consumer demand and a prolonged housing downturn. (3)
The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable, but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors, and we recommend that clients seek independent advice from a professional advisor on tax-related matters.
Trump's tariffs keep coming. Stock markets don't seem to care, Rob Wile, NBC News, August 12, 2025
Canadian dollar clings to weekly gain as rate-cut bets edge up after jobs data, Fergal Smith, Yahoo Finance, August 8, 2025
Global markets weekly update, T. Rowe Price, August 8, 2025
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Looking to Learn?
If you want to know more about some of the topics we wrote about this week, just click on the links below:
Why Stocks Keep Rising—Despite Trump’s Tariff Chaos