The Month of June saw market volatility driven largely by geopolitical instability and trade policy shifts. The markets were initially rattled by escalating tensions in the Middle East and uncertainty surrounding U.S. tariff policy. Despite these headwinds, the month ended on a strong note for most asset classes, as the anticipated fallout from both the conflict and trade disputes didn’t fully materialize. Sentiment rebounded in the 2nd half of the month, and markets ended with healthy gains globally. Easing of Middle East tensions, culminating in a ceasefire between Israel and Iran in late June, helped stabilize energy markets and brought inflows into the defense and industrial sectors.
After the last few months of back and forth on Tariff policy, the White House doubled down on steel and aluminum import tariffs, raising them to 50%, and signaled a broader “tariff wall” strategy that could persist for years. Despite a court ruling limiting the use of emergency powers for tariffs, the administration retained multiple legal avenues to maintain elevated trade barriers.
June saw a return to record highs in the Nasdaq 100 and S&P 500, with companies like Nvidia, Microsoft, and Broadcom hitting 52 week highs. The Middle East’s aggressive investment in AI infrastructure, particularly in Saudi Arabia and the UAE, further boosted semiconductor and data center stocks. Despite stretched valuations and overbought technical indicators, investor enthusiasm remained high, causing global growth stocks to outperform value at 4.93% vs 3.73% for the month, according to the MSCI World Growth and Value index.
Stocks and Commodities
The US dollar continued its downward trend in June, driven by a combination of dovish monetary policy expectations, widening fiscal deficits, and political uncertainty surrounding the Federal Reserve. For US-based investors, this depreciation boosted returns on foreign investments, as gains in local currencies translated into stronger dollar-denominated performance. Emerging markets were among the primary beneficiaries, with equities in the segment delivering a total return of 6.1% in June according to MSCI EM index. The easing of trade tensions between the US and China further supported capital flows into these markets, particularly in Asia.
In Canada, the TSX ended the month with a modest gain of 2.9%. Healthcare and Information technology were the best performing sectors. Notably, the Canadian small caps, measured by the S&P/TSX SmallCap Index also outperformed, with a return of 6.2%. Economically, data has shown exports to the US have slowed from the first quarter, likely due to front loading before tariffs take effect. This is forecasted to cause a modest GDP contraction going into the third quarter. The increase of steel, aluminum, and auto sector tariffs is expected to weigh materially on Canada’s economy. The Bank of Canada held its rate unchanged at 2.75% at its June meeting, citing uncertainty surrounding these tariffs, as well as sticky inflation and a softening labor market. The Bank of Canada is still expected to cut rates to 2.25% by year end.
In local currency terms, the S&P 500 still managed to lead major indices, with a return of 5.09%, driven by robust corporate earnings and continued momentum in technology and AI-related sectors. However, when adjusted for currency effects, Asian equities emerged as the top performing region, with the MSCI Asia Ex-Japan index returning 6.2%. The Korean won and the Taiwanese dollar especially, gathered momentum over the US Dollar. Asian regions benefited from renewed optimism around trade and a rebound in manufacturing activity, particularly in China and South Korea.
European and UK equity markets delivered positive returns but lagged their US and Asian counterparts. European equities, measured by the MSCI Europe ex-UK, returned a muted 2.3%. The region was supported by moderating inflation and fiscal stability. UK equities faced headwinds, with the MSCI UK index gaining 1.4%.
Geopolitical tensions stemming from the conflict between Iran and Israel introduced short term volatility in energy markets. Brent crude briefly surged to an intra-day high of $80 per barrel following US military intervention on June 22. However, the announcement of increased production quotas by OPEC, combined with easing tensions, led to a reversal in oil prices, which settled at $68 per barrel. Gold remained flat over the month.
Bonds
Despite a rise in US real yields, global inflation-linked securities outperformed, aided by the weakening US dollar, which increased the value of foreign currency denominated payments in US dollar terms. Persistent wage growth and tariff-related cost pressures sustained demand for inflation protection, particularly in developed markets. This environment supported both US TIPS and global inflation-linked bonds.
Global Credit markets stabilized in June, following the volatility experienced earlier in the quarter. Investment grade corporate bonds posted modest positive returns, supported by tightening credit spreads and improving investor sentiment. US high yield bonds outperformed other credit segments. The recovery in spreads, which widened significantly in April, reflected market optimism around Tariffs and better than expected corporate earnings. The rebound was broad-based, with both US and European credit markets benefiting from improving investor sentiment. US high yield bonds outperformed other credit segments, benefiting from their correlation with equities.
The broad Canadian fixed income market remained largely flat for the second month in a row. Economic performance in Canada aligned closely with forecasts, and the Bank of Canada maintained interest rate levels, resulting in minimal movement in bond prices. The short end of the curve squeaked out a muted 0.3% gain, while the long end paired it on the downside with -0.4%, measured by the ICE Canada Bond universe. Corporate bonds fared slightly better than Government issued.
US Treasury yields were mixed, with the long end of the curve rising in response to growing fiscal concerns. While short term yields remained relatively stable, 30-year yields increased by 0.2%, reflecting market apprehension over the “One Big Beautiful Bill Act.” The bill is set to increase the US Federal deficit between $3 and $5 trillion over the next 10 years, before accounting for any tariff offsets. This raises questions about the sustainability of Federal finances.
European sovereign bonds outperformed their US and Japanese counterparts, supported by continued monetary easing from the European Central Bank. The ECB implemented its second rate cut of the quarter, lowering the deposit rate to 2.0%. While ECB President Christine Lagarde indicated that the easing cycle may be nearing its conclusion, the markets still anticipate at least one additional cut by year end. Falling yields and narrowing spreads, particularly in peripheral markets such as Italy, contributed to positive returns. Additionally, euro appreciation against the US dollar further enhanced returns for international investors.
Conclusion
June 2025 continued the trend of market volatility, echoing the turbulence seen earlier in the year. US policy around tariffs and fiscal legislation remained a dominant source of uncertainty. Despite this, equity markets demonstrated remarkable resilience by month end. While the market’s recovery has been impressive, the outlook for the second half of the year remains clouded by a complex and evolving US policy environment. The full economic impact of the tariff regime is expected to become more visible in the coming months, particularly as temporary suspensions expire and legal challenges unfold. Additionally, fiscal concerns tied to the “One Big Beautiful Bill Act” have begun to influence long-term interest rates and investor sentiment. To navigate the uncertainty, investors should continue to focus on being well diversified.
