Fuelled by interest rate reductions, a strong start to the third quarter earnings season, and sustained enthusiasm for AI-related investments, global markets trended positively throughout October.

Naturally, these positive forces have been well-received. What was less expected was the muted reaction toward the longest U.S. government shutdown in history. Although the circumstances have made official economic data scarce, there are indications that the North American economy is slowing. A report from the Chicago Federal Reserve flagged the unemployment rate creeping up, and inflationary pressures persist.

Global equity markets have become more expensive over time as well, after nearly two years of undeniably impressive returns. We note, however, near-term performance has historically moved independently of high valuations. Positive investor sentiment is pronounced, and substantial liquidity from softer monetary policy could continue flowing into market opportunities as opposed to savings vehicles. Both forces could push share prices higher still.

Policy-wise, Carney’s government has tabled their first official budget. The November 4th unveiling showed what many anticipated—the deficit is slated to reach $78 billion, comprised of $141 billion in new outlays and $51 billion in projected savings over the next five years through cost-cutting initiatives. Without a majority government, it remains to be seen which opposing party will step forward to support the budget.

The budget itself may address the Bank of Canada’s limitations, as policymakers have noted that further progress falls to the government providing fiscal stimulus. Broad tax cuts are unlikely, but Budget 2025 has earmarked public spending in the ledgers. Provincial bodies will also play a role, as seen with Premier Ford’s ongoing construction initiative—a page from former Prime Minister Harper’s playbook during the financial crisis of 2008.

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