Uncertainty seems to be the word of the year. It’s ubiquitous, popping up whenever the topic of investment markets arises, and it has been disconcerting for both investors and their financial advisors. However, there’s opportunity in uncertainty if you know where to look, says John Bai, Chief Investment Officer and a Senior Vice-president with NEI Investments.

“The first half of 2025 has been anything but predictable for Canadian financial advisors. From political upheaval to shifting economic tides, advisors have had to recalibrate strategies, reassure clients, and stay nimble in the face of volatility,” Bai says. “Yet, amid the noise, many have found opportunity — not just in markets, but in the strength of their client relationships and the clarity of their long-term visions.”

Still, he says, it has been a stressful environment, as lofty expectations at the start of the year collided with a far more challenging reality.

A tale of two quarters: from tariff turbulence to market recovery

The first half of 2025 has presented investors with a rapidly shifting landscape shaped by macroeconomic uncertainty and geopolitical developments. Equity markets began the year under pressure as concerns over renewed tariffs dampened investor sentiment, triggering broad-based declines in the first quarter.

However, sentiment turned sharply in the second quarter after the U.S. administration announced a 90-day tariff pause on April 9. That day, the S&P 500 surged 9.5% — its best single-day performance since 2008.

The dramatic turnaround in equities between the first and second quarters, says Bai, is a vivid reminder markets can rebound swiftly, often motivated by a single headline. The April 9 rally can serve as a lesson to investors, since those who moved to the sidelines during the Q1 downturn missed a substantial portion of the year’s gains.

Diverging market signals call for caution

While equity markets have recovered much of their early-year losses, the bond market has continued to face headwinds. This disconnect is primarily driven by differing investor expectations and reactions to economic indicators.

The stock market appears optimistic, almost pricing in a soft landing, with strong earnings, moderate inflation, and low recession risk. In contrast, the bond market is signaling something very different. Yields on U.S. treasuries have risen substantially since the start of the year, reflecting investor concerns about persistent inflation and the growing cost of servicing U.S. national debt. Bai sees several implications.

First, higher treasury yields increase the government’s borrowing costs, which raises long-term concerns about the sustainability of U.S. fiscal policy. This adds a structural layer of risk to the economic outlook.

Second, high yields often reflect pessimism in the bond market regarding growth and inflation. They also tend to draw capital away from risk assets such as equities, which can tighten financial conditions.

Finally, higher yields may attract foreign capital and strengthen the U.S. dollar. While this may sound positive, it can also make U.S. exports less competitive and widen the trade deficit.

The long-term yield increases are not uniquely a U.S. phenomenon. Bai points out we’re seeing this globally, with other major economies experiencing similar yield pressures for different reasons, such as higher import costs from tariffs.

Keeping a close watch on regions

In the near term, the U.S. looks solid, Bai adds. GDP growth has been stronger than expected, corporate earnings are robust (with S&P 500 data suggesting about 9% earnings growth over the next 12 months), and the job market continues to perform well. However, longer-term risks remain. Tariffs and elevated interest rates could begin to weigh on investment and productivity. And, with forward price-to-earnings ratios sitting near all-time highs, much of the good news may already be priced into the market.

Canada stands out positively. The Bank of Canada has taken an easing stance, which is helping to stimulate growth and inflation. Canadian equity valuations are more reasonable than U.S. equity valuations, and earnings growth is expected to be strong — around 6.2% for 2025 and 11.5% for 2026.

Across Europe, the U.K., and Japan, valuations are generally lower than in the U.S., making those markets relatively more attractive. While earnings growth expectations are more modest outside North America, these regions present a cushion against downside risk due to their lower entry prices. Recent economic data has also shown positive momentum in the European Union, with upside surprises in growth indicators. Meanwhile, the U.S. and Canadian economies are showing more subdued activity, reinforcing the value of geographic diversification.

Strategies for advisors to consider

The biggest takeaway from the first six months of the year, and the message that should inform investors through the rest of 2025, is that it continues to be critical to diversify. In an environment of still-strong fundamentals and earnings power, Bai also believes it’s vital to remain invested.

“We expect volatility to continue for the rest of the year,” says Bai. “Within equities, we favour areas with less downside risk.”

He notes that up-and-down markets provide opportunities for active managers who can go long and go short to produce certain outperformance.

As advisors position portfolios to navigate an investment climate characterized by uncertainty, Bai recommends they inform clients about the strategies they’ve put in place to help protect assets.

“Client communication should emphasize resilience strategies, such as focusing on quality assets, dividend payers, and global diversification,” he says.

When clients understand the efforts advisors are making to give them the steadiest ride possible, they’ll be better equipped to handle whatever surprises the rest of 2025 throws our way. Knowing their portfolios are well positioned for uncertainty can give clients the confidence and discipline in the face of negative and positive news — both essential so they don’t react emotionally and derail their long-term plans.

Bai shared more detailed information at NEI Investments’ Mid-year outlook webcast on July 24, 2025, at 1 p.m. EST. Get access to our webcast replay and videos snapshots with key takeaways to support your client conversations—helping address concerns and ensuring they remain invested during market uncertainty.

Check it out now!