Canadian stocks set record high in ‘breathtaking’ year

Donald Trump had just imposed the toughest tariffs since the Great Depression, stifling trade and ending a trade deal he had negotiated. The US president also openly discussed annexing Canada, stoking unfathomable tensions between the two longtime allies. Political unrest added to the unease in the North.

Then Trump backed away from his toughest tariffs. Technocrat Mark Carney took over as prime minister, calming jitters in financial markets and easing tensions with his American counterpart. And it turned out that the Canadian economy – driven by world-renowned mining and financial firms – was perfectly positioned to weather the chaos of Trump’s new world order.

The S&P/TSX index has surged more than 40% from its April 8 low, putting the indicator on track to finish 2025 with a 29% advance, trailing only 2009’s 31% gain, the best gain on record. The index hit a record 63 new all-time highs, thanks to a steady rise over the last seven months of the year.

Mining and banking stocks played a central role in the rally, with the materials subindex doubling on the back of a rally in gold, silver, copper and palladium. The financial group jumped 40%. Tech darlings like Shopify Inc. and Celestica Inc. also contributed, pushing the index up 11% over the year.

“The numbers themselves are somewhat mind-blowing,” Philip Petursson, chief investment strategist at IG Wealth Management, said by phone. “But, I mean, you could stand there and say this is still a well-balanced market that still has upside potential in 2026.”

The fuel from the rally that propelled precious metals to new records may not be spent. Three rate cuts from the Federal Reserve have been a boon for an asset class that doesn’t pay interest. The US central bank is expected to cut interest rates twice in 2026.

Gold and silver also served as safe havens for traders worried about uncertainty surrounding U.S. trade policy and geopolitical tensions in Europe and the Middle East. None of these concerns have been completely allayed.

Petursson said he sees further runway for gold prices to continue to support the S&P/TSX Composite Index, but not to the same extent that markets have seen over the past year.

“It would be foolish to extrapolate this year’s gains to 2026,” he said, noting, however, that “the fundamentals are still there” as central banks are expected to continue cutting rates.

Canada’s big six banks, including Toronto-Dominion and Bank of Montrealjob higher profits than expected over the year, with annual adjusted earnings beating Bloomberg consensus expectations by an average of 2 percentage points.

The group’s financial companies, including insurers and small banks, represent 33% of the Canadian index. They, too, benefited from lower rates in the United States and Canada, as well as profits from transactions and a better pool of loans requiring fewer reserves. The progression of the Canadian group has almost doubled that of its American counterparts.

There are some concerns about the group’s performance heading into 2026. Bank valuations have been elevated just as the Canadian economy may begin to feel pressure from rising tariffs, said Craig Basinger, chief market strategist at Purpose Investments.

“Now, energy: these sectors really don’t care about the Canadian economy, but the banks probably should,” Basinger said. “And now is simply not the time to be paying a premium valuation to Canadian banks.”

The price-to-earnings ratio for the S&P/TSX Composite Banking Subindex reached nearly 15, up from a 2022 low of 9.7.

The Canadian index record was reached despite one of the worst years in recent memory for crude oil prices. The problem, however, is that the oil outlook remains moderate at best. Basinger said getting into oil and gas stocks early in the year would be a very contrarian move given that demand is struggling to keep up with supply.

The market would also be vulnerable to any problems in the precious metals markets. Silver is already sliding towards the end of the year, although it is still on track for a record gain.

Bassinger’s firm took a partially underweight position in the S&P/TSX Composite Index in the fourth quarter, which he said was more focused on profit-taking after “three straight years of outsized gains” rather than a negative view of the index.

If the new year brings upside surprises for oil, then strategists like Petursson say the S&P/TSX Composite Index is a great way for foreign investors to take advantage of the energy sector. For Petursson, the answer to whether investors can successfully place their money outside of the United States is “yes,” and there are excellent options in other markets like Canada, Asia and Europe.

“When foreign investors are looking for opportunities, if the TSX wasn’t on their radar, I think it is now,” Petursson said.