The S&P/TSX Composite Index is on track to set fresh records in 2025, with analysts predicting Canadian equities will continue to outperform their U.S. counterparts despite economic uncertainty and ongoing trade tensions with Washington.
On Tuesday, Canada’s main stock index surpassed the 30,000-point milestone for the first time, marking a gain of more than 20 per cent so far this year — well ahead of the S&P 500’s performance.
BMO’s chief investment strategist, Brian Belski, recently raised his year-end target for the TSX to 31,500 from 28,500, building on his long-standing optimism for Canadian markets.
“We now expect the TSX to outperform the S&P 500 in local currency by over eight per cent on an annual basis this year, marking one of the strongest outperformances since 1990,” Belski said.
“In fact, only in 1993, 1999, and 2005 were years when the TSX was up double digits and outperformed the S&P 500 by over eight per cent.”
Belski acknowledged that his bullish stance had faced skepticism in 2024, but noted that the rally has exceeded even his expectations.
“The stock market recovery that no one believed, was widely panned and even more loudly doubted when we first published our view that Canada was entering a prolonged period of outperformance relative to the U.S. way back in mid-2024, has reached heights that even we thought were lofty,” he wrote in a client note.
Strong gains in mining and financial stocks have powered much of the index’s momentum this year, according to Brendan Caldwell, president and CEO of Caldwell Investment Management. He sees further upside as interest rates fall on both sides of the border.
“If they’re cutting rates here and south of the border, the money is not really going to go into the Main Street economy as much as it will go into financial assets,” Caldwell told Yahoo Finance Canada. “Cheap money makes markets go up.”
The Bank of Canada lowered its benchmark rate by 25 basis points last month, while the U.S. Federal Reserve also cut rates for the first time in 2025. Economists expect another BoC rate cut in October.
Despite the rapid ascent, some analysts argue Canadian stocks remain attractively priced. Hugo Ste-Marie, equity strategist at Scotiabank, noted in a research report that while valuations have risen, there is still room for expansion.
“Although the TSX is not as cheap as it used [to be], we believe valuation still has room to expand,” Ste-Marie said.
“We believe further BoC and Fed easing will provide additional support to valuation metrics.”
With momentum on its side and central banks shifting toward looser monetary policy, the TSX appears well positioned to continue its record-breaking run into the year’s final stretch.
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