Market Overview
Equity markets around the world rose for the fourth consecutive month in July amid guarded optimism that the U.S. would strike deals with its trading partners to lower proposed tariffs, and, in the process, mitigate downside risks to the global economy.
Three months after the rollout of U.S.’s new trade policy triggered a spike in volatility, global stock markets were calm during July despite the end of a 90-day pause in tariff implementation and discussions of higher import taxes. In late July, news that the U.S. and Japan had reached an agreement to lower tariffs from the initial 25% to 15% sparked a strong market rally, as investors expected the deal could influence other countries’ negotiations with the U.S. before the August 1 tariff deadline. The rally gained additional momentum a few days later after the European Union and the U.S. reached a trade deal to lower tariffs from the initial 30% to 15%, and on hopes that the U.S. and China would delay higher reciprocal tariffs beyond the August 12 deadline. The new 15% tariffs negotiated by Japan and the European Union are significantly higher than the previous 1.6% tax on non-agricultural Japanese goods and the 2.7% levy on European goods.
With the August deadlines for re-imposing higher U.S. import taxes looming, the market rally stalled in the closing days of the month amid slow progress in negotiations, especially with four of the U.S.’s largest trading partners—China, Mexico, Canada, and India. The U.S. and Mexico did, however, agree to abide by an existing trade deal for 90 days while the two countries negotiate a new agreement.
U.S. trade policy continued to be front and centre in the minds of monetary policymakers at key central banks. In the U.S., the Federal Reserve held interest rates steady for a fifth consecutive policy meeting in the closing days of July, despite political pressure to lower borrowing costs. The Fed’s latest monetary policy action was expected, but global stock markets reacted negatively when the U.S. central bank dampened hopes for a rate cut in September, citing inflationary pressure that could worsen due to U.S. trade policy, and a job market that remained “in balance.” Notably, the Fed’s decision to stand pat on interest rates came as the latest readings from two closely monitored gauges of domestic inflation showed faster-than-expected year-over-year price growth in June, suggesting the first signs of tariff pass-through were emerging. The yield on the benchmark 10-year U.S. Treasury note ended July at 4.38%, 15 basis points (bps) higher than a month earlier.
Across the Atlantic, the Europe Central Bank (ECB) held interest rates steady in July, citing the need for more clarity on how U.S. trade policy will impact the eurozone’s economy. The ECB’s latest monetary policy decision, which was taken a few days before the EU’s trade deal with the U.S. was announced, marked the end of eight consecutive policy meetings in which the eurozone central bank lowered borrowing costs. Due to the “exceptionally uncertain” economic environment in the common currency bloc, the ECB stated that it was now in “wait-and-see” mode. In July, the yield on the 10-year German Bund, Europe’s principal safe-haven asset, rose 9 bps, ending the month at 2.70%.
Meanwhile, in Asia, the Bank of Japan (BOJ), also held interest rates steady at its policy meeting in July, even as the Japanese central bank raised its inflation forecasts and acknowledged that the trade deal between Japan and the U.S. had lifted some of the uncertainty that was hanging over Japan’s economy. These latest developments stoked market speculation that the BOJ may resume its rate-hiking campaign later this year.
The start of the new earnings season provided investors with the latest update on how company profits have held up amid a challenging macro environment. In the U.S., 82% of the companies in the S&P 500 Index that reported results topped consensus estimates, outperforming the long-term average of 67%. The first-quarter earnings growth rate is estimated to have increased 10.3% from a year earlier. In Europe, 45% of the companies in the STOXX 600 Index that reported results posted better-than-expected earnings, below the 54% that do so in a typical quarter. The first-quarter earnings growth rate is expected to have increased 5.1% from a year earlier. In Japan, 59% of the companies in the TOPIX that reported results posted positive earnings surprises, surpassing the 55% beat rate over the past four quarters. The first-quarter earnings growth rate is estimated to have decreased 16.4% from a year earlier. In Hong Kong, 75% of the companies in the Hang Seng Index that reported results registered better-than-expected earnings, outpacing the 55% beat rate over the past four quarters. The first-quarter earnings growth rate is projected to have decreased 3.5% from a year earlier.
Against this backdrop, equity markets in the developed and developing worlds both gained in July, with the latter outperforming the former. In the U.S., the S&P 500 outperformed, as risk appetites were bolstered by abating tariff risk and strong earnings results of Big Tech companies that benefited from renewed enthusiasm for artificial intelligence (AI). In Europe, the STOXX 600 retreated as investors weighed the impact that U.S. tariffs had on company earnings. In Japan, the TOPIX fell, as the U.S. dollar’s 4.7% appreciation against the yen in July weighed on the index’s dollar-denominated return. In yen terms, the TOPIX rose and outperformed the broader global index. Meanwhile in China, the CSI 300, a gauge of large Chinese companies trading in Shanghai and Shenzhen, rose and outperformed on hopes that U.S. and China would extend their pause in levying higher reciprocal tariffs as the world’s two largest economies continued to negotiate a trade deal ahead of the August 12 deadline.
Information technology was the best-performing sector in July, as shares of U.S. Big Tech companies continued to benefit from the recovery of the AI trade. Consumer staples was the worst-performing sector on concerns about softer consumer spending and rising costs.
Outlook
Increased uncertainty surrounding the U.S. economic outlook and key policy measures, including specifically tariffs, continue to sow uncertainty in markets and have interrupted what had previously been, in our opinion, a clearer line of sight towards decelerating inflation and strong likelihood of success achieving an economic soft-landing. Our base case expectations for moderate economic deceleration have been further tested in recent months as the announced U.S. tariff measures were more punitive than initially anticipated and remain in an on-again, off-again state of flux.
While markets continue to wrestle with considerable uncertainty, we expect Infrastructure to continue to exhibit critical defensive qualities and remain an invaluable diversification component for investment portfolios given the essential nature and real asset characteristics of the asset class. In contrast to businesses and industries where valuation is underpinned primarily by revenue growth and often highly competitive profit margins, critical infrastructure derives considerable valuation support from its high fixed cost of investment and high visibility, high margin cash flows collected over long periods of time [to recoup the initial capital outlay].
This important combination of characteristics tends to lend itself to superior defensive positioning, in our view, against global trade uncertainty, inflationary pressure, economic recession and market volatility. On the risk side of the ledger, however, we include typically above-average levels of balance sheet leverage and sensitivity to interest rates.
From a sectoral standpoint, we see a number of multi-year critical infrastructure investment trends likely to continue largely undeterred by recent tariff and trade uncertainty. Electrification and the growing demand for power serves as an example, in our view. Utilities were a key positive contributor to performance during 2024 and have been a defensive respite thus far in 2025. While we maintain a favourable sector outlook for Utilities and foresee scope for upward earnings revision, valuations have also re-rated higher, and we do not expect the same pace of returns for utilities to continue in the U.S. On the other hand, we continue to find very compelling valuations and opportunities in utilities outside the U.S.
Outside of the utilities sector, we believe U.S. midstream energy, namely oil & gas storage and transportation, continues to offer a compelling combination of attractive valuation and improved capital allocation discipline. And while increased uncertainty regarding global trade and the risk of global recession now weighs more heavily on energy prices and the sector earnings outlook generally, the vast majority of the cash flows associated with the portfolio’s midstream holdings are fee-based and enjoy strong support from take-or-pay contracts and spread differentials at key access points.
Elsewhere within the portfolio, we see an abundance of opportunities stemming from large-scale investment in transportation infrastructure, information technology and energy development & security, leading to increased demand for materials, capital goods and industrial equipment.
We believe the portfolio remains well-positioned to take advantage of these opportunities in real asset infrastructure businesses as well as key enablers, including materials, services, and technologies, that will both facilitate and benefit from increased investment in infrastructure.
The information contained herein provides general information about the Fund at a point in time. Investors are strongly encouraged to consult with a financial advisor and review the Simplified Prospectus and Fund Facts documents carefully prior to making investment decisions about the Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated.
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Allocations and security selection are subject to change. The performance quoted represents past performance. Past performance is not a reliable indicator of future results. Mention of these securities should not be considered a recommendation or solicitation to purchase or sell the securities. It should not be assumed that any investment in these securities was, or will prove to be, profitable, or that the investment decisions we make in the future will be profitable or equal to the investment performance of securities referenced herein. There is no assurance that any securities referenced herein are currently held in the portfolio or that securities sold have not been repurchased. The securities mentioned may not represent the entire portfolio.
Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one’s home market. The values of these securities may be affected by changes in currency rates, application of a country’s specific tax laws, changes in government administration, and economic and monetary policy. Emerging markets securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging markets countries can be extremely volatile; performance can also be influenced by political, social, and economic factors affecting companies in these countries.
Securities and instruments of infrastructure companies are more susceptible to adverse economic or regulatory occurrences affecting their industries. Infrastructure companies may be subject to a variety of factors that may adversely affect their business or operations, including additional costs, competition, regulatory implications, and certain other factors.
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Published on August 19, 2025.