Q4 2025 Market Summary

The fourth quarter of 2025 capped off a strong year for markets despite lingering trade uncertainties and a mixed economic backdrop. Equities posted moderate gains, with the S&P/TSX Composite advancing by approximately 4%, the S&P 500 up 3%, and the Nasdaq Composite rising 4%. These gains were supported by resilient corporate earnings, stabilizing inflation, and cautious monetary policy adjustments from central banks. Technology and materials sectors continued to lead, buoyed by AI advancements and commodity strength, while diversification remained key amid risks like tariffs and geopolitical tensions. Overall, markets emphasized quality investments and long-term positioning.

The Bank of Canada (BoC) held its policy rate steady at 2.25% in December, following a 25-basis points point cut in October from 2.50%. This pause came after a series of reductions earlier in the year, reflecting progress on disinflation and a balanced labor market. The BoC's neutral stance aims to support growth without reigniting price pressures, with money markets anticipating potential stability or even a hike by Q4 2026 if economic data strengthens. *Bank of Canada

Canadian CPI held at 2.2% year-over-year in November, with core measures like CPI-trim at 2.6%. Shelter costs eased slightly, but food and services inflation ticked higher due to fewer promotions. Overall, inflation remains within the BoC's target range, supporting a soft landing. *Stat Can CPI

In the U.S., the Federal Reserve cut rates by 25-basis points in December, bringing the target range to 3.50%-3.75%. This marked the third cut in 2025's second half, aligning with easing inflation and moderate growth. Dissent among members highlighted a shift toward a more measured approach, with projections suggesting one additional cut in 2026 amid stronger economic forecasts. *Federal Reserve

American core PCE inflation was 2.8% in November, while core CPI eased to 2.6%. Headline CPI rose to 2.7%, influenced by tariffs, but forecasts suggest moderation to around 2.3% by 2028. Persistent pressure from tariffs could keep inflation above the Fed's 2% target in 2026. *Deloitte

Canada and the U.S. economies continue to increasingly part ways. The U.S. is poised for stronger growth fueled by fiscal stimulus, AI-driven productivity, and regulatory easing, even as tariffs keep inflation elevated. In contrast, Canada faces subdued expansion dragged by slower population growth, persistent trade uncertainties from the upcoming CUSMA review, and tariff headwinds prompting the Bank of Canada Governor Tiff Macklem "unless we change some other things, our standard of living, as a country—Canadians—is going to be lower than it otherwise would have been.” This growing policy divergence highlights resilience south of the border versus caution in the north.

Lower borrowing costs from rate cuts boosted asset prices and reduced recession odds, with U.S. probabilities at around 4%. However, tariff effects and softening labor markets tempered consumer spending. Infrastructure investments and AI-driven productivity gains provided offsets, lifting equities and supporting a resilient outlook. 

Canadian equities advanced modestly, with the S&P/TSX Composite up about 4% amid commodity strength. Materials gained 1.2%, driven by gold and metals, while technology rose 2.2%. Earnings for TSX companies showed solid beats, contributing to the index's 29% annual surge. *Reuters

Canadian 10-year yields dipped to around 3.4%, reflecting softer growth signals and BoC caution. The yield curve steepened slightly, with credit spreads tightening. U.S. 10-year Treasury yields fell to 4.17%, supported by Fed cuts and tariff-related uncertainty. *Trading Economics

U.S. markets saw the S&P 500 rise 3%, with 89% of companies beating earnings estimates and Q4 growth at 8.3%. The Nasdaq gained 4%, led by tech amid AI momentum. Sector highlights included technology (+2.2%) and materials (+1.2%), with all-time highs reflecting broad optimism. *S&P Global

Transports and small-caps—traditionally seen as leading indicators—both rallied toward the end of the year after trailing the broader market for much of 2026. Neither development is truly a trend, but if this strength continues, it could indicate faith that the economy can grow and provide better job prospects. Projected earnings growth in 2026 is 9.2% for Q3 and 7.4% for Q4, with AI, materials, energy, and financials as key themes. Risks include U.S. midterms, tariffs, and sticky inflation, but opportunities in diversification and quality assets persist. In his December press conference, Federal Reserve Chair Jerome Powell said economic activity is "expanding at a moderate pace," and consumers appear "resilient." Charles Schawb

Q4 provided a strong close to a volatile yet positive 2025. With ongoing trade negotiations, fiscal investment, and monetary policy still unfolding, the months ahead may offer cautious opportunity. We are here to support you in achieving your financial goals. If you require any assistance or have any questions please do not hesitate to reach out to Cliff, Mario, Mark, or our TSG team.

The opinions expressed are those of the author and not necessarily those of CI Assante. Wealth Management Ltd. This material is provided for general information and the opinions expressed and information provided herein are subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on the information presented, please seek professional financial advice based on your personal circumstances. CI Assante Wealth Management Ltd. is a Member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. The opinions expressed are those of the author and not necessarily those of CI Assante Wealth Management Ltd. This material is provided for general information and the opinions expressed and information provided herein are subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on the information presented, please seek professional financial advice based on your personal circumstances. CI Assante Wealth Management Ltd. is a Member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.