Canada’s main stock index, the S&P/TSX Composite Index, has concluded 2025 with unprecedented success, achieving remarkable annual gains not seen in over 15 years. Despite facing trade tensions and economic challenges that kept the country near recession, the index rose nearly 29 percent over the year.
Record Gains Amid Economic Pressures
The S&P/TSX Composite Index marked its strongest annual performance since 2009, recording a 1.3 percent increase in December alone, achieving its eighth consecutive monthly advance. This performance stands out especially since the widely anticipated Santa Claus rally, a period where stocks typically see gains, didn’t materialize this year.
Significant Performance Metrics
- Index Increase: Nearly 29% over the past 12 months
- December 2025 Gain: 1.3% increase
- Annual Return (including dividends): 32.2%
- Outperformance over S&P 500: S&P 500 rose 16.4% in 2025
The index, which tracks the performance of 218 companies traded on the Toronto Stock Exchange, reflects strong returns for many Canadian equity investors. A significant factor in this outperformance was a doubling in the value of the materials sector, driven largely by a remarkable 65% surge in gold prices. This increase in gold prices marks the steepest annual rise since 1979.
Contributing Factors to Performance
The rally in the materials sector was fueled by a blend of factors, including:
- U.S. Federal Reserve interest rate cuts
- Geopolitical tensions
- Increased central bank purchases of gold
- Inflow into gold exchange-traded funds
Other sectors also showed promising results. Financial stocks jumped by over 30%, while the consumer sector saw gains of more than 15%. Overall, the Canadian index achieved its second-best annual performance this century.
Industry Insights
Experts are noticing a mixed sentiment in the market. Despite the impressive gains, some analysts express caution. Douglas Porter, chief economist with BMO Capital Markets, highlighted that the market’s stability reflects domestic demand despite flat retail sales. Markets continue to be influenced by broader trends in U.S. corporate profitability, where S&P 500 earnings are projected to rise over 15% in 2026.
However, many predict that the formidable gains witnessed in 2025, particularly in precious metals, are unlikely to repeat in the coming year. Shiraz Ahmed, CEO of Sartorial Wealth, notes concerns regarding potential shifts in the commodity cycle that could affect investor sentiment.
Looking Ahead to 2026
The upcoming year is anticipated to bring continued uncertainties. Analysts are particularly cautious regarding:
- Sustainability of the artificial intelligence revolution
- Volatility surrounding ongoing trade tariff discussions
- The impact of U.S. midterm elections
Valuations in the tech sector are reportedly at historic highs, indicating potential challenges ahead. The Federal Reserve’s monetary policy decisions will also play a crucial role in shaping market dynamics for both the U.S. and Canadian stock markets in 2026.
As we close out 2025, the S&P/TSX Composite Index’s gain stands as a remarkable achievement, but investors remain vigilant as they navigate an unpredictable economic landscape.
