Performance in the equity markets during 2025 was positive, albeit unbalanced. For the first time in many years, the Canadian S&P/TSX Index outperformed the S&P 500 in the United States. Characteristic of the sector concentration within those indices, the Canadian market performance was mostly driven by gold and bank stocks, two sectors which, combined, represent more than half of the index. In the United States, relatively modest performance continued to be driven by technology, although unlike in recent years, returns were more evenly distributed across a number of sectors in the fourth quarter. The artificial intelligence (AI) trade has now broadened out from an earlier concentration in the large technology players to companies that provide the infrastructure required to build out the data centre capacity needed to implement AI.
Financial markets endured the increasing geopolitical uncertainty emanating from the policies of the second Trump Administration, particularly with the erratic use of tariffs affecting international trade. During 2025, short term interest rates were reduced by both the U.S. Federal Reserve and the Bank of Canada, which helped slow the decline in labour demand and prop up consumer spending among the wealthier. Meanwhile, ongoing deficit spending and the surge in AI-related infrastructure investment continued to drive economic growth.
Looking forward, equity market investors are ignoring the growing risks from those factors that have propelled recent market performance. The significant rise in sovereign debt levels in the western world seems to be viewed as a non-issue, coupled with the illusion that interest rates will continue to decline. Investors seem unconcerned about the limited returns on the enormous amount of capital being poured into AI. On trade, there is the belief that rising U.S. tariffs are having a minimal impact on fuelling inflation or in rupturing global trade. And finally, the discounting of escalating geopolitical conflicts that may result in higher energy prices.
These complacencies cannot be ignored. With time, financial markets will reflect these risks and an inevitable correction will ensue. Although short-lived, a case in point was the sharp decline in both the U.S. equity and bond markets in response to President Trump’s recent saber-rattling over Greenland.
Considering the risks, we continue to maintain elevated cash levels in your portfolio and focus on equities in conservative, durable and well-managed companies, while avoiding the temptation of chasing the “hot” sectors. In summary, our outlook for 2026 remains a cautious one.
Fourth Quarter 2025
Performance in the equity markets during 2025 was positive, albeit unbalanced. For the first time in many years, the Canadian S&P/TSX Index outperformed the S&P 500 in the United States. Characteristic of the sector concentration within those indices, the Canadian market performance was mostly driven by gold and bank stocks, two sectors which, combined, represent more than half of the index. In the United States, relatively modest performance continued to be driven by technology, although unlike in recent years, returns were more evenly distributed across a number of sectors in the fourth quarter. The artificial intelligence (AI) trade has now broadened out from an earlier concentration in the large technology players to companies that provide the infrastructure required to build out the data centre capacity needed to implement AI.
Financial markets endured the increasing geopolitical uncertainty emanating from the policies of the second Trump Administration, particularly with the erratic use of tariffs affecting international trade. During 2025, short term interest rates were reduced by both the U.S. Federal Reserve and the Bank of Canada, which helped slow the decline in labour demand and prop up consumer spending among the wealthier. Meanwhile, ongoing deficit spending and the surge in AI-related infrastructure investment continued to drive economic growth.
Looking forward, equity market investors are ignoring the growing risks from those factors that have propelled recent market performance. The significant rise in sovereign debt levels in the western world seems to be viewed as a non-issue, coupled with the illusion that interest rates will continue to decline. Investors seem unconcerned about the limited returns on the enormous amount of capital being poured into AI. On trade, there is the belief that rising U.S. tariffs are having a minimal impact on fuelling inflation or in rupturing global trade. And finally, the discounting of escalating geopolitical conflicts that may result in higher energy prices.
These complacencies cannot be ignored. With time, financial markets will reflect these risks and an inevitable correction will ensue. Although short-lived, a case in point was the sharp decline in both the U.S. equity and bond markets in response to President Trump’s recent saber-rattling over Greenland.
Considering the risks, we continue to maintain elevated cash levels in your portfolio and focus on equities in conservative, durable and well-managed companies, while avoiding the temptation of chasing the “hot” sectors. In summary, our outlook for 2026 remains a cautious one.