The year so far has been positive for stock markets, with the S&P/TSX composite gaining more than 18% and the S&P 500 up more than 25%. But uncertainty — specifically, the potential for big U.S. trade tariffs — looms for 2025.
“Overall, 2024 had a very early-cycle vibe to it, with technology, financials and consumer discretionary all performing well,” wrote Robert Kavcic, senior economist and director with BMO Economics, in a recent report. “And why not, with easing cycles getting underway on both sides of the border.”
Tech sector gains, for example, are nearing 40% for the S&P/TSX composite, following last year’s gain of nearly 69%.
“The ongoing run in technology and [artificial intelligence]–related sectors also powered the Nasdaq to a 30% advance on the year,” Kavcic wrote. “If it holds, it would be only the third back-to-back 30%-plus performances since the late 1960s — the others were 1998–99 and 2019–20.”
On the opposite side of the ledger are Canadian telecoms. “The sector shed more than 20% and was by far the worst performing sector in North America,” Kavcic wrote. “Competitive pressure, high debt burdens and an aggressive cap on population growth all weighed.”
For markets in 2025, “all eyes will be on how much more central banks can cut rates, and how well growth and earnings respond to the easing already in the system,” Kavcic wrote, as well as the uncertainty on the fiscal and trade fronts.
Significant tariffs on U.S. imports would raise prices for U.S. consumers, putting a “material dent” in the U.S. economy, said Avery Shenfeld, CIBC’s chief economist, in a recent video. The U.S. would likely be hit with retaliatory tariffs, negatively affecting U.S. exporters. The result would be rising inflation.
“That pop in inflation might push bond yields up a little bit,” Shenfeld said, though the scenario wouldn’t be positive overall. In fact, a slower-growth, higher-inflationary environment would lead to stagflation, he said.
In the same video, Ian de Verteuil, head of portfolio strategy with CIBC, said market levels make clear that equities investors hope aggressive trade tariffs won’t be implemented. Assuming a hyper-inflationary environment doesn’t arise, the new U.S. administration’s focus on deregulation would be positive for business and the economy south of the border, he said. Consequently, “Canada will do OK as long as the U.S. continues to perform.”
Still, a weaker Canadian economy relative to the U.S. would likely mean lower interest rates in Canada and a weaker loonie relative to the U.S. dollar.
And as rates fell at the short end of the yield curve, investors with excess money in maturing short-term GICs could look to dividend payers, like financials and pipelines, for yield. That trend could broaden to utilities and REITs, de Verteuil said. “I think that’s really the trade within the Canadian markets for next year,” he said.
Shenfeld said the Conservative Party of Canada’s potential win in the next federal election would mean a lighter touch in the energy sector and smaller government, potentially providing tax relief.
“For investors in the energy [and] the resource sector, speeding up approvals [and] processes for new projects and so on — all that will be a plus,” Shenfeld said, and would align with the Trump administration’s deregulation approach.
Space economy set to grow
Investors looking for innovation opportunities in 2025 may want to consider the space economy, which is expected to reach US$1.8 trillion by 2035, up from US$630 billion today, as cited in a video featuring Lazar Naiker, senior analyst with AGF Investments Inc.
“We are now starting to see commercial interests take more of a role in space exploration and innovation,” Naiker said in the video. Within space launches, for example, pioneering companies are developing technologies such as reusable rocket components.
More satellites are also in orbit, with both defence and civil applications. Communication and earth-observation satellites enable various industries through, for example, increased access to broadband and improved supply and logistics.
“We see significant opportunities emerging in the space economy, whether they be in the infrastructure required to expand our capabilities or the industries they will enable to propel us into the future,” Naiker said.