Financial strategists predict that Canada’s primary stock market index, the TSX, could climb to 28,000 in the coming year.
Canada’s main stock index, the S&P/TSX Composite Index, is predicted to hit a record 28,000 points in 2025, driven by rising corporate earnings and interest rate cuts. This year alone, the index has surged 18%, marking its best performance since 2021. Despite lingering uncertainties over U.S. trade policies under Donald Trump, market strategists remain optimistic about Canada’s economic prospects.
Philip Petursson, chief investment strategist at IG Wealth Management, attributes this bullish outlook to Canada’s relatively affordable stock valuations compared to U.S. equities. He believes that lower inflation and interest rates in Canada make it an attractive option for investors.
The Bank of Canada began easing monetary policy in June, slashing rates five times to reach 3.25%, significantly lower than the Federal Reserve’s policy rate. Economists expect further cuts, potentially bringing the overnight rate to 2.5% by mid-2025. This move has provided a boost to key sectors like technology and finance, with companies such as Shopify Inc. seeing gains of 50%.
Economic Growth and Trade Challenges
While Canadian stocks thrive, economists project modest GDP growth of 1.8% next year, up from 1.2% this year. However, potential trade conflicts with the U.S. loom as a significant risk. A full-scale trade war could hurt Canada’s already fragile economy, which contracted slightly in November. Despite these risks, the weaker Canadian dollar has proven advantageous for exporters, as it boosts the value of U.S.-dollar revenues.
Brian Belski of BMO Capital Markets predicts the TSX could reach 28,500 points next year, fuelled by rate cuts and increased capital inflows. However, Colin Cieszynski of SIA Wealth Management remains cautious, forecasting the index to only reach 26,000 points due to trade uncertainties.
Population Growth Slows, Infrastructure Struggles
Immigration policies tightening could slow population growth, affecting sectors tied to domestic demand, such as telecom. Christine Poole of GlobeInvest Capital Management suggests that while this may benefit GDP-per-capital in the long term, the short-term economic impact could be negative due to reduced demand for goods and services.
Conclusion
While Canada’s TSX faces potential risks, such as trade tensions and slowing population growth, the outlook remains optimistic. Strategic interest rate cuts and Canada’s favourable market conditions provide strong tailwinds for sustained growth in the coming years.
