Lexicon Financial Group Weekly Update — June 11, 2025
“An old saying is that in a bull market, your time horizons grow longer and longer. In a bear market, they grow shorter and shorter.”
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
Looking Around
Wayne participated in his sixth Ride to Conquer Cancer over last weekend. This two-day bicycle ride, a 200-kilometre-plus event, is a major fundraising intitiative for Princess Margaret Cancer Centre in Toronto. For the unprepared, there are long straight sections, sections with curves, and sections with hills.
Kind of like markets.
So far this year, we have seen major stock markets go up, down, sideways and around. This is the nature of stock markets and the natural cycle of markets is to rise and fall. Yes, the falls are scary. Just think back to the falls resulting from the COVID-19 pandemic and the global financial crisis of 2008. These falls are caused by rising interest rate, geopolitical events or global shortages of a key commodity like oil. Investor expectations or perceptions can also affect stock markets. A “stock market bubble” occurs when investors rush to buy and bid up stock prices beyond what the companies are worth. When this bubble bursts, stock prices fall and the markets usually enter a bear market cycle.
Historically, these falls have been followed by rises, as the stock market cycles for days, months and even years. Sometimes, when markets fall, some investors see an opportunity to invest more. Why? Typically after the fall, recovery increases spending, there are less layoffs and confidence grows, which prompts markets to rise once again.
Some say that this volatility is the price investors pay for long-term outperformance of holding a portfolio of cash only. We’d agree.
A bull market is when stock prices rise over 20 per cent during a specific period without dropping an equal amount. For example, even if the market fell 12 per cent during this period, if prices rebounded and kept rising, the bull market would continue. Rising stock markets often happen with increasing corporate profits, a growing economy, higher wages and lower unemployment. During this “bullish” phase of the market cycle, investors can get very optimistic and overconfident, leading to what’s called “irrational exuberance.” This can lead people to leave their carefully-planned, long-term strategies and to take on more investment risk by buying stocks when markets are peaking.
From a behavioural finance perspective, bull markets are quite often characterized by investors who exhibit the “fear of missing out.” Sometimes, irrational investments are made. We’ve written about this before, but a great example remains “tulip mania,” which occurred between 1634 and 1637 in Holland. If you’re into history or flowers, it’s worth looking into.
A bear market is one where stocks fall 20 per cent or more without rising an equal amount. Sometimes, there are declines that might not be categorized as a bear market, declines from highs of approximately 10 per cent. These are called "corrections" and can be a result of an overreaction to a specific event. “Correction” sounds more polite, but is empirically a poor term. It implies that markets were improperly priced and things are now being corrected and brought back to normal. For clarity, the market price is the sum-total of what investors think it is worth on any given day.
Corrections and bear markets may cause investor panic and shorter-term bouts of market volatility that can lead investors to take their eyes off the long-term prize. The stress and worry associated with falls in markets can, sometimes, cause investors to make investment decisions based on emotions instead of facts. This is usally when investors sell the otherwise “quality” stocks of companies whose prices fall because the market did and not because anything changed at the companies. It should be noted that a bear market isn’t the same as a stock market crash. A stock market crash describes a headline-grabbing, dramatic plunge in the market that happens in a day or two. Bear markets are, by nature, a longer, drawn-out fall in prices.
A full market cycle is usually defined as the period between two highs - a bull market, then a bear market and then another bull market. The exact timing of these cycles changing can’t be predicted and it’s counterproductive to focus on this question. Timing the market is challenging, to say the least. Historical data shows there’s a great likelihood of making a higher long-term return just by staying invested and riding out the market ups and downs roller coaster. This requires investors to have a well-planned, long-term strategy and remain focused on their investing goals. (1)
We may be going into summer but that does not mean that the markets are taking a vacation. They’ll continue to go up and down hills like a cyclist. And, if you ever have questions or concerns, we are always just a phone call or email away.
Read and Watch
Want deeper insight into topics in your Weekly Update? Then, read and/or right click:
Canada could gain as global investors rethink U.S. emphasis: BNP economist
U.S. economy adds 139,000 jobs as growth slows
A United Europe Can Shape the Global Economy
Looking Back
We are almost halfway through 2025. Time definitely does fly and quite a lot has happened in global stock markets so far. This year began positively in January but that dissipated, thanks to the implementation of tariffs by the United States (U.S.), the growing spectre of higher inflation and ongoing geopolitical events like the wars in Ukraine and Gaza.
The Toronto Stock Exchange's S&P/TSX composite index (TSX) rose last Friday, as the energy sector moved higher on rising oil prices, and U.S. and Canadian jobs data eased investor concerns about a possible recession. For the week, the TSX was up nearly one per cent. Canada's economy added 8,800 jobs last month, compared to an expected decline of 12,500. (2)
Despite this, it is clear that this pace of hiring is not enough to keep pace with population growth. The rate of unemployment in Canada edged up to seven per cent, which is the highest since 2016, excluding the pandemic period. As you can see from the graph below, the number of job gains in Canada has slowed notably this year.
Source: Bloomberg, Edward Jones.
Employment has declined in manufacturing, transportation and warehousing, and construction sectors, as the U.S. tariff effects start to show. This will not have escaped the notice by the Bank of Canada (BoC), which, last week, held its key interest rate at 2.75 per cent for a second straight meeting. Although elevated core inflation and strong first-quarter growth drove the pause, the exports surge is not expected to be repeated. It will not be too long before the BoC returns to rate cuts, as the economy goes through a soft patch during the rest of 2025. (3)
Major U.S. stock indexes closed higher for the second week in a row. The Nasdaq Composite (up 2.18 per cent) and Dow Jones Industrial Average (up 1.17 per cent) both advanced to join the S&P 500 Index in positive territory for the year. The information technology sector outperformed, due in part to upbeat sentiment around artificial intelligence (AI)-related stocks in the wake of several positive corporate earnings reports. Trade remains a major topic of the day, as tensions between the U.S. and China continued to re-escalate, following social media comments from President Donald Trump at the end of the week before. However, on Thursday, Trump and President Xi Jinping held a phone call, which resulted in a very positive conclusion for both countries, according to a social media post from Trump. This has given investors some hope that the trade issues can be resolved.
The highlight of last week’s U.S. economic calendar was Friday’s closely watched nonfarm payrolls report, which seemed to indicate the labour market is cooling but at a slower pace than many were anticipating. The U.S. unemployment rate held steady at 4.2 per cent, which is within the 4.0 to 4.2 per cent range that it has been in since May 2024. U.S. stocks and Treasury yields rose on Friday following the release. However, U.S. manufacturing activity contracted for a third consecutive month in May. According to a report from the Institute for Supply Management (ISM), the May purchasing managers’ index (PMI) reading of 48.5 per cent fell short of estimates for 49.5 per cent and was the lowest reading since November last year. Remember that readings below 50 per cent are a sign of a contraction.
That said, the upward movement of the stock markets in North America was followed by markets in Europe. The pan-European STOXX Europe 600 Index ended 0.90 per cent higher as inflation slowed, and the European Central Bank (ECB) eased monetary policy. Other major European stock indexes rose, thanks in part to strong U.S. jobs data, which appeared to allay fears of a recession.
In Japan, stock markets fell as there was no apparent agreement in the bilateral trade talks between the U.S. and Japan. However, the talks reinforced preparation for an agreement to potentially be announced at the Group of Seven (G7) summit this month. Household spending fell 0.1 per cent year on year in April, down from a 2.1 per cent rise in March and short of consensus estimates for a 1.4 per cent gain. Inflation-adjusted wages declined by 1.8 per cent year on year in April, weaker than consensus estimates, as inflation continued to outpace the wage hikes granted by employers. The Bank of Japan has emphasized that, despite some pockets of weakness, Japan’s economy is undergoing a moderate recovery. It also reiterated its readiness to raise interest rates again, if its economic and price projections continue to materialize. This has reinforced expectations of a gradual monetary policy tightening cycle.
Mainland Chinese stock markets advanced, as a batch of weaker-than-expected economic indicators raised hopes that the government would roll out more stimulus. A private survey showed that China’s manufacturing sector suffered its biggest decline since September 2022, reflecting the impact of U.S. tariffs on smaller exporters. Expectations that a spiraling trade war with the U.S. would spur Beijing to deploy more stimulus have driven Chinese stocks in recent weeks, though hopes for more support have been tempered as both countries work toward a broader agreement. (4)
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.
What are market cycles? Insights & Advice, Canada Life, March 13, 2025
TSX adds to weekly gain as tech and energy shares climb, Fergal Smith, Reuters/Yahoo finance, June 6, 2025
Weekly market wrap, Angelo Kourkafas, Edward Jones, June 6, 2025
Global markets weekly update - U.S. labour market cools in May, T. Rowe Price, June 6, 2025
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