Canada ended 2025 with a stock market performance that seemed impossible just a few months ago. The S&P/TSX Composite Index ended the year up 29%, its second-best annual performance this century.
Only 2009, when the index rose 31%, produced a stronger result. The benchmark hit 63 all-time highs, most of which were concentrated in the last seven months of the year.
Looking back to early April, the setup was ugly. Donald Trump, still in office in 2025, has imposed the toughest tariffs since the Great Depression. Trade slowed rapidly. Trade deals he once negotiated were effectively scrapped.
Trump has spoken openly about annexing Canada. Political tensions increased. Markets north of the border felt it immediately.
Market changes direction due to tariff relaxation and change of leadership
Then the pressure was on. President Trump has backed away from the most harmful tariffs. Mark Carney, a technocrat with deep roots in finance, became Prime Minister. Market stress has eased. Tensions with Washington eased.
What happened next surprised almost everyone. canadian economyIt is backed by miners and global financial companies, and fits well into President Trump’s chaotic trade world.
The S&P/TSX is up more than 40% from its April 8 low. The climb was steady, not frantic. The index continued to rise for seven consecutive months. By the end of the year, the calculation was fixed. 29% return per year. 63 records. historic run.
The gains were heavily tilted towards miners and banks. The materials sub-index doubled due to strong movements in gold, silver, copper and palladium.
The financial sector rose 40%. Technology also brought weight. Combined, Shopify and Celestica added 11% to the index. No single sector carried the load alone.
Filip Petursson, chief investment strategist at IG Wealth Management, sums up the scale of the move: “The numbers themselves are a little bit surprising,” Philip said by phone. “But you could still argue that this is a balanced market and there is still room in 2026.”
Interest rate cuts played a big role. The Federal Reserve cut interest rates three times in 2025. There are benefits to assets that don’t pay interest. The central bank is expected to cut rates by another double in 2026, and precious metals markets were quick to react. Gold and silver set new records. It also drew demand from traders concerned about trade policy and conflicts in Europe and the Middle East.
Philip said the metal could continue to support the TSX next year, albeit at a slower pace. “It would be foolish to simply extrapolate this year’s increase to 2026,” he said. “The basics are still there.”
Banks monopolize profits, while oil and valuations raise the flag
Banks were the backbone of the rally. Canada’s Big Six, including Toronto-Dominion and Bank of Montreal, beat profit estimates. Full-year adjusted earnings beat the Bloomberg consensus by an average of 2 percentage points. Lower interest rates helped. The trading activity was helpful. Loans improved and provisions decreased.
Financial groups, including insurance companies and small lenders, account for 33% of the index. Their gains were nearly double the gains made by their U.S. peers. Lower interest rates in both the US and Canada have provided momentum across the group.
Still, a sense of alarm is creeping in. Craig Basinger, chief market strategist at Purpose Investments, warned of soaring valuations as tariffs begin to weigh on the economy.
“Gold and energy don’t care about the domestic economy,” Craig said. “Banks should probably do that. Now doesn’t seem like the time to pay a premium price.”
Canada’s banking sub-index currently trades at a price-to-earnings ratio of nearly 15x, up from 9.7x in 2022.
Oil didn’t help either, as oil’s own index hit a new record despite the worst year in memory for oil prices. Delays in demand and supply. Craig said it would have been contrarian to buy oil and gas stocks at the beginning of the year. The outlook remains bleak.
Philip said the TSX still has the potential to attract global capital. If oil prices rise unexpectedly, the index becomes leveraged. He said investors looking beyond the U.S. are finding real options in Canada, Asia and Europe. “If TSX wasn’t on their radar,” says Philip. said“It’s now.”
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