2025 – The Year in Review

2025 turned out to be a very good year for diversified investors. Most major stock markets finished higher, and portfolios benefited from staying invested despite plenty of headlines and uncertainty along the way.

In Canada, the story was especially strong. The S&P/TSX posted standout returns, and a big reason was strength in resource-linked areas of the market — especially gold-related companies and materials. When those parts of the market do well, the TSX tends to benefit more than U.S. indexes, simply because Canada has a larger weighting to resources.

Meanwhile, global markets also moved higher, supported by a mix of easing interest-rate expectations, steady economic growth, and corporate earnings that generally held up better than many expected.

What Drove Returns in 2025

1) The Year Started With a Trade Scare, But Markets Recovered

Early in 2025, markets had a sharp bout of volatility tied to Trump’s tariff announcements and trade-policy uncertainty. The concern was simple: tariffs can raise costs for businesses and consumers, reduce trade, and slow economic growth. Investors responded by quickly pricing in “what if this hurts earnings?”

As policy messaging shifted and markets got more clarity, risk assets stabilized and recovered. In other words, the year was a good reminder that markets can move fast on scary headlines, but they can also bounce back fast when the worst-case outcome doesn’t materialize.

Exhibit 1: Trump’s tariff threats sends currencies and stocks on a wild ride

Source: Reuters, Feb 6, 2025

2) Canada Did Especially Well Because of What Canada Owns More of

The TSX isn’t built like the S&P 500. The Canadian market has more exposure to resources and financials and less exposure to the mega-cap tech names that dominate the U.S. In 2025, that mattered, because gold and gold-related companies were a major driver of Canadian returns. Financials were second, and Energy was third. Canada wasn’t “magically better.” The TSX simply had more weight in parts of the market that happened to have a strong year.

Exhibit 2: Canada vs. US Sector Composition (Top Performing Sectors in 2025)

Source: Morningstar December 2025

3) Corporate Earnings Held Up

Over time, stock markets follow a pretty basic formula:

• If company profits grow, stock prices tend to rise.
• If profits fall, stocks struggle.

Despite the headlines in 2025, profits and business results were generally resilient. That allowed markets to move higher as the year progressed, even after periods of uncertainty.

Source: FactSet, 2025

4) Interest Rates Helped Support Markets

Interest rates matter because they affect almost everything in the economy:

• What it costs businesses to borrow and expand
• What it costs families to finance homes and cars
• How attractive bonds and GICs look compared to stocks
• How investors value future company profits

Markets don’t just react to what central banks do today, they react to what investors think they’ll do next.

In 2025, as inflation continued to cool from prior highs and the economy stayed reasonably resilient, investors increasingly believed that the next big move in rates would be down, not up. That shift in expectations helped support both stocks and bonds at different points during the year (the Bank of Canada cut rates 4 times in 2025, and the Federal Reserve cut rates 3 times in 2025).

Source: CI Global Asset Management of December 2025

Source: CI Global Asset Management of December 2025

5) A Handful of Companies Drove the US Market Again

One of the most important themes of recent years is concentration, meaning a relatively small group of very large companies can have an outsized impact on index returns. In the case of US returns, seven companies had more than 50% of the returns of the total index. It wasn’t the full Magnificent Seven this time but it was made up of NVIDIA, Alphabet, Microsoft, Broadcom, JPMorgan Chase, Palantir, and Meta.
The Artificial Intelligence (AI) transformation is underway, and the market believes it will be a transformative technology (at least as much, if not more so, than the development and commercialization of the internet). We advocate diversification so that returns are not concentrated and dependent on a small set of companies with high valuations, regardless of the success of AI.

6) Don’t Forget the Rest of the World

A lot of investors default to the U.S. market because it’s familiar and has led for so long. But in 2025, international developed markets delivered a reminder that diversification isn’t just theory, it can materially help returns.
The MSCI EAFE Index (which includes developed markets like Europe, Japan, Australia, and others) was up roughly +28.6% in 2025. Although Trumps tariffs and protectionist trade policies contributed to the international stock performance, the primary causes of growth were as follows:

• Different sector mix: international markets often have more exposure to areas like financials, industrials, and value-oriented companies, which can shine when leadership broadens.
• Starting valuations: many international markets entered 2025 priced more conservatively than the U.S., giving them more “room” to perform when sentiment improved.
• Currency effects for Canadians: when you own global assets, currency can either help or hurt returns in Canadian dollars depending on how CAD moves versus other currencies. For 2025, half of the international returns were related to currency with a weaker US dollar being the cause.

2026 Forecast

Base Case (60% odds): Moderation, not meltdown
The economy slows a bit but keeps moving forward. Inflation continues to cool, and interest rates drift lower over time. Company profits grow at a normal pace. Markets don’t surge, but they trend upward with some bumps along the way.

What it could look like:

• Equities: mid to high single digits (with more volatility and wider dispersion)
• Bonds: low single digits
• Balanced Portfolios: +5% to +8%

Best Case (25% odds): Broadening + Productivity Upside
Inflation falls faster, rate cuts come sooner, and growth stays healthy. More companies participate in the rally (not just a few big names). Investors regain confidence, and stocks deliver strong gains while bonds hold steady.

What it could look like:

• Equities: low to mid teens
• Bonds: slightly positive
• Balanced Portfolios: +6% to +10%

Worst Case (15% odds): A Setback Year
Something surprises markets—sticky inflation, higher rates, weaker profits, or a policy/geopolitical shock. Stocks pull back as investors get more cautious. The year still becomes a long-term opportunity, but it feels uncomfortable in the moment.

What it could look like:

• Equities: drawdown (negative) in mid-teens (or more), concentrated areas hit hardest
• Bonds: May cushion if the shock is growth driven (not inflation driven)
• Balanced Portfolios: -5% to -12%

What’s Happened So Far in 2026 (in CAD $):
January started the year on a constructive note, but not without a few sharp swings along the way.

• Canada (S&P/TSX Composite): +0.8% (after a gold sell-off at the end of the month).
• US (S&P500): +0.2%
• EAFE: +3.9%

Looking Ahead

We expect to see more market volatility in the weeks ahead. While it can often be difficult during times like these, staying the course is usually the best solution. We encourage investors to remain disciplined as, in our opinion, the volatility is temporary. If you have any concerns about the market or your portfolio during this time, please reach out to us.