The third quarter of 2025 closed with a broad-based – rally across North American equities, underpinned by an inflection toward lower interest rates and a resilient U.S. economy. In the United States, the S&P 500 Index delivered strong quarter and year-to-date returns in an increase that moved beyond large caps as rate expectations eased, and earnings met or surpassed consensus estimates. This equity strength arrived alongside the Federal Reserve’s September 17, 2025, decision to cut the policy rate by 25 bps—to a 4.00%– 4.25% target range—and a signal that the Federal Reserve would proceed meeting-by-meeting given softer hiring and a cooler labour backdrop.
Canada’s equity market decisively outpaced the U.S. in the third quarter. The S&P/TSX Composite Index was boosted by a powerful rally in precious metals. The financial sector also rallied as domestic interest rates fell. The Bank of Canada reduced interest rates by 25 basis points to 2.50% on September 17, 2025, explicitly citing slower activity and contained inflation. Canadian economic data pointed to a weakening economy with real GDP contracting in the second quarter and unemployment levels remaining elevated.
In our view, broad based equity valuations are now in speculative territory in both the U.S. and Canada. The American market has been driven by the excitement and promise of Artificial Intelligence (AI). Investors believe that AI will create both an investment and productivity boom. Along with the prospect of declining interest rates, investors’ optimism has reached levels seen in other speculative bubbles. In our opinion, a very serious concern is the substantial flows into crypto currencies. In many cases, leveraged investment vehicles have been created to invest in crypto assets.
In Canada, the rise in equities has been largely due to precious metals, and in particular, gold. Gold is traditionally seen as a hedge against inflation and economic instability. At over $4,000 USD per ounce, the price of gold is now at all time highs. Investors are increasingly concerned about ballooning government debt, potential inflation, and the worry around political interference in central bank policy. In our view, gold continues to attract investors seeking stability in the face of global political unrest and economic unpredictability.
The chart below indicates the elevated valuation of U.S. equities relative to historical norms.i
We believe Lysander-Patient Capital Equity Fund (the “Fund”) continues to be well positioned for current market conditions, and that a significant cash balance positions the Fund favourably, should markets become volatile. We have recently initiated new positions in companies with long operating records and sound balance sheets. In addition, we are of the view that the portfolio’s overall characteristics compare favorably to major benchmarks such as the S&P 500 Index and the S&P/TSX Composite Index.
iWanderer Financial
