Canadian stocks expected to grow in 2025, but slower than in 2024

According to experts, the Canadian stock market will continue to gain strength in 2025. However, investors will need to prepare for greater volatility and be patient, since the pace of gains is expected to be a little slower than in 2024.

According to Angelo Kourkafas, senior investment strategist at Edward Jones, there is a good chance that the current bull market will continue through 2025, despite tariff threats from the United States and political uncertainties in Canada.

When we step back and analyze the situation, we see that economic growth continues. The increase in corporate profits and the prospect of a gradual reduction in interest rates are also elements that will remain in place in 2025explained Mr. Kourkafas.

The S&P/TSX Composite Index hit record highs in 2024 and ended the year up 18%.

Mr. Kourkafas predicts that the increase will continue throughout 2025, but believes thatVolatility is likely to increase and the pace of gains to slow.

Thus, some risks could eclipse the pace of growth of the Canadian index in 2025. According to Mr. Kourkafas, the customs tariffs that American President-elect Donald Trump wishes to impose on Canadian products could harm business investments. In his opinion, the overvaluation of certain technology stocks in the American market also represents a threat to the markets.

There is a lot of enthusiasm around artificial intelligence, but valuations [des titres technologiques] are a bit exaggerated.

Nevertheless, many analysts believe that the constant growth of the Toronto Stock Exchange, also called TSX, rests on solid foundations.

The increase in corporate profits and profits across all sectors, as well as the Bank of Canada’s lower interest rates, will help propel the stock market to a record highsaid Brianne Gardner, wealth manager at Raymond James.

The TSX should thus experience sustained growth due to high commodity prices, particularly in the energy and materials sectors, which should rebound in 2025, she added.

The benefits of a weak Canadian dollar

The federal government has recently increased its investments in Canadian infrastructure to increase the number of housing units in the coming years, which could help revive TSX materials sector stocks.

A weaker Canadian dollar could also work in favor of the stock market, attracting more foreign investment to Canada, Ms. Gardner said.

The Canadian financial sector has maintained a solid performance and should receive a moderate boost due to upcoming mortgage renewals, which will allow the sector to be even more profitable, she noted.

Further interest rate cuts, although less significant than in 2024, will also push the stock market higher, adds the wealth manager.

According to Mr. Kourkafas, consumer resilience, slowing inflation and rising wages also play in favor of the Canadian stock index, since this strengthens consumer and business confidence.

There is a very strong link between the TSX and corporate profits. After a year in which TSX earnings were quite weak, we expect an acceleration in 2025, with potential double-digit growthsaid Mr. Kourkafas, who expects average profit growth of 10 to 12% in 2025, which will send the TSX higher.

Un duel TSX c. S&P 500

Even so, the TSX is expected to underperform this year compared to the S&P 500, a stock index based on 500 large companies listed on U.S. stock exchanges.

Mr. Kourkafas believes the gap between the two indexes will narrow, but that the TSX will advance at a slower pace due to Canada’s slowing economic momentum amid trade and export uncertainties.

Ms. Gardner, who agrees with Mr. Kourkafas, argues that the TSX could rise during the second half of the year, as interest rates in Canada continue to fall, thus stimulating consumer spending.

The importance of a diversified portfolio

Brian Madden, chief investment officer at First Avenue Investment Counselfor his part declared that he is extremely important to have a diversified portfolio in 2025.

Mr. Madden, whose clients invest in both public and private markets, said his fund’s equity mandate remains 50-50 for investments in the United States and Canada. This has not changed over the last two quarters.

He said being an active investor – choosing mispriced or undervalued stocks rather than continually falling back on Magnificent Seven (Microsoft, Apple, Alphabet, Amazon, Nvidia, Meta, and Tesla) – could be imperative for growth in the years to come.

Geographic diversification of asset classes could also contribute to growth, Madden added.

The latter suggests to investors who fear possible customs tariffs to invest in sectors likely to escape them, such as services, which is also the largest sector in the country.

Another way to mitigate risk is to own shares of companies that have pricing power and can pass on the cost of tariffs without suffering significant losses in market sharehe said.