Experts forecast that the Canadian equity market will continue to build on its strength in 2025, despite lingering political uncertainties and potential tariff threats. The foundation for this positive outlook lies in ongoing economic growth, rising corporate profits, and the expectation of lower interest rates. While the S&P/TSX composite index reached record highs in 2024, the pace of gains is expected to slow down in the new year, with increased volatility. Risks that could impact the market include ongoing tariff threats from the U.S. and overvaluation of certain tech stocks in the market.
Rising corporate profits and earnings, combined with lower interest rates from the Bank of Canada, are expected to drive the equity market towards new records in 2025. Strong commodity prices, particularly in the energy and materials sectors, are set to support the growth of the TSX. Increased investments in Canadian infrastructure by the federal government, along with a weaker Canadian dollar, are also expected to benefit the equities market by attracting more foreign investment. The Canadian financial sector is projected to receive a moderate boost from upcoming mortgage renewals, setting it up for further profitability.
A resilient consumer, softening inflation levels, and rising wages are factors working in favor of the Canadian index, increasing consumer and business confidence. Analysts anticipate double-digit earnings growth for the TSX in 2025, which could potentially push the index higher. Despite these positive factors, the TSX is expected to underperform when compared to the S&P 500, due to Canada’s slower economic momentum and trade uncertainties. Interest rate cuts and consumer spending could boost the TSX performance in the second half of the year, but the U.S. stock market is forecasted to continue leading in the short term.
Investment experts suggest maintaining a diversified portfolio in 2025 to navigate potential market uncertainties. Diversifying asset classes by geography and focusing on opportunities in both Canada and the U.S. could help investors mitigate risks and capitalize on growth prospects. Being an active investor, selecting undervalued stocks, and diversifying into industries likely to escape tariffs, such as the service sector, are strategies recommended to navigate market conditions. Diversification can help investors withstand setbacks and corrections in the market and capitalize on opportunities for growth in the coming years.
Overall, the outlook for the Canadian equity market in 2025 remains positive, with expectations for continued growth supported by various economic factors. While risks and uncertainties persist, with potential threats from tariffs and overvaluation in certain sectors, investors are advised to stay patient, diversify their portfolios, and capitalize on opportunities for growth in both Canada and the U.S. by selecting undervalued assets and industries that are likely to perform well in the current market conditions.
