As we look back at the first half of 2025, markets were notably volatile, driven by a mix of policy uncertainty, including tariff announcements from U.S. President Donald Trump, persistent inflationary pressures and ongoing geopolitical tensions. With these dynamics in play, we turned to Canada Life’s sub-advisors to understand how they see the rest of the year unfolding. The Investment Manager Research (IMR) team used a focused survey to gather their views on future market volatility and the themes they believe will most influence market performance over the second half of the year. Their insights illustrate how seasoned investment professionals are interpreting current conditions and positioning portfolios for what’s possibly coming. 

2025: First half versus second half  

70% of the survey respondents anticipate market volatility will remain elevated in the second half of 2025, reflecting ongoing concerns around tariffs, inflation pressures, policy uncertainty, geopolitical tensions, elevated equity valuations and market concentration. 

The unpredictability of U.S. trade policy, especially tariffs, is a major source of market instability, according to most of our sub-advisors. In their view, tariffs, supply chain disruptions, and labour market dynamics are then fueling inflation concerns with Central Banks walking a tightrope between supporting growth and containing inflation. Add to that, conflicts in Europe, the Middle East and tensions revolving around China, and the global risk sentiment and market volatility only heighten.  

While most expect continued volatility, a handful of sub-advisors believe it may ease in the second half as markets adjust to policy changes and macro conditions stabilize. 

Top market performance themes for the next six months  

We asked our sub-advisors about the top themes they see driving market performance in the second half of 2025. The table below provides a ranking of the most common themes mentioned.

Canada Life sub-advisors broadly agree that market performance in the second half of 2025 will likely be shaped by four key factors: 

• Unpredictable tariff policies, which are disrupting trade and fueling inflation; 
• Central bank actions, especially the U.S. Federal Reserve’s (Fed) interest rate decisions; 
• Persistent inflation risks driven by tariffs and fiscal deficits; and 
• Heightened geopolitical uncertainty, including conflicts in Ukraine, the Middle East, and tensions with China. 

These interconnected forces are creating volatility, pressuring corporate margins and influencing investor sentiment. Most sub-advisors emphasize the need for caution and adaptability in navigating this complex macroeconomic and political environment.

Below is a summary of why our sub-advisors believe these themes will likely drive market performance in the second half of the year:

Tariff policy and trade tensions

• Tariff announcements are a dominant market driver
• The unpredictability and on-again/off-again nature of tariffs are creating uncertainty.
• Tariffs are raising input costs, disrupting supply chains and potentially fueling inflation.
• Trade negotiations, especially with China, are seen as pivotal.

Monetary policy from central banks

• The Fed’s actions are under intense scrutiny, especially regarding interest rate cuts.
• Central banks are balancing inflation risks with the need to support growth.
• A dovish stance could support markets, while a hawkish pivot might trigger volatility.

Geopolitical uncertainty

• Conflicts in Ukraine, the Middle East and tensions around China-Taiwan are major concerns.
• These risks could impact commodity prices, investor sentiment and global economic stability.

Inflation concerns

• Inflation remains a major risk, driven by tariffs, fiscal deficits and geopolitical instability.
• Rising inflation could lead to higher interest rates, pressuring equity valuations and consumer spending.

Valuation and market concentration

• U.S. equity markets, especially the “Magnificent Seven,” * are seen as richly valued.
• There’s concern regarding the ability of companies to sustain their growth and margins.
• Market concentration increases vulnerability to shocks.

Fiscal policy uncertainty

• U.S. fiscal policy, including deficit spending and Treasury issuance, is influencing bond yields.
• Global fiscal trends are also affecting fixed-income markets.

Our Canada Life sub-advisors broadly agree that heightened market volatility is likely to persist through the second half of 2025, driven by a complex interplay of macroeconomic, policy and geopolitical forces. In the survey, sub-advisors consistently identified U.S. tariff policy, particularly the unpredictability of announcements from the Trump administration, as a central source of market disruption. These trade measures are seen as inflationary, disruptive to global supply chains and damaging to investor confidence. Monetary policy from central banks, especially the U.S. Federal Reserve, is another dominant theme. 

Sub-advisors are closely watching how central banks navigate the delicate balance between inflation control and economic support, with interest rate decisions expected to have far-reaching implications for both equity and fixed-income markets. Geopolitical tensions and elevated equity valuations further contribute to a cautious outlook. While some sub-advisors see potential for stabilization with greater policy clarity, the consensus leans toward heightened vigilance. 

In conclusion, many of our sub-advisors are maintaining their long-term focus that embraces this volatility as part of their investment process. It would also present an opportunity for active managers to identify strong businesses at attractive valuations. While this kind of environment may feel unsettling, resulting dislocations can reward disciplined, company-level analysis across asset classes. Flexibility and risk management remain key, with tactical shifts guided by macro developments. Overall, many portfolios are being positioned to balance caution with selective long-term opportunities amid ongoing uncertainty.

IMR: Our role in selecting best-in-class managers

Canada Life offers a full and diversified suite of investment funds across major asset classes. We believe that no single asset manager can excel across every asset class. That’s why we use a multi-manager, best-in-class sub-advisor approach that draws on several management styles, investment philosophies and risk management strategies from around the world. 

The IMR team selects and oversees these best-in-class sub-advisors across Canada Life’s mutual and segregated fund platforms. With more than 100 years of combined experience in wealth management, the IMR team applies a rigorous and objective governance process to select, continuously monitor and evaluate sub-advisors on our shelf. This helps align our high standards and investment goals.

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This should not be construed as legal, tax or accounting advice.  This material has been prepared for information purposes only. The tax information provided in this document is general in nature and each client should consult with their own tax advisor, accountant and lawyer before pursuing any strategy described herein as each client’s individual circumstances are unique.  We have endeavored to ensure the accuracy of the information provided at the time that it was written, however, should the information in this document be incorrect or incomplete or should the law or its interpretation change after the date of this document, the advice provided may be incorrect or inappropriate.  There should be no expectation that the information will be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.  We are not responsible for errors contained in this document or to anyone who relies on the information contained in this document.  Please consult your own legal and tax advisor.

This material may contain forward-looking information that reflects our or third-party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of July 8, 2025. There should be no expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.

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