In the following 5-minute video, Blair Setford, Canada Life Investment Management Ltd.’s AVP of Product Management, provides his take on the fourth quarter of 2025 and an outlook for 2026.
Blair notes that global equities closed 2025 on a strong note, despite a late-year rotation from growth sectors into more defensive areas. Canadian and U.S. markets hit record highs in December, underscoring investor optimism. U.S. strategists anticipate another solid year ahead, supported by easing inflation and three Federal Reserve rate cuts in the second half of 2025. In contrast, Canada’s softer economic backdrop has kept the Bank of Canada on hold at 2.25%, with some analysts even predicting a potential hike later this year, contingent on trade negotiations with the U.S. and Mexico.
Canadian equities outperformed U.S. markets for the first time since 2016, driven by resource-linked sectors—particularly gold—and strong bank performance. While Canada avoided a technical recession, underlying demand remains weak. In the U.S., markets posted a third consecutive year of double-digit returns, buoyed by dip-buying despite volatility from Big Tech valuation concerns, a hawkish Fed tone, and the longest government shutdown in history. Late-year gains broadened to include small caps and defensive sectors.
Looking ahead, synchronized global rate cuts, strong U.S. bank fundamentals, and improving commercial real estate trends could support continued equity gains in 2026. Risks remain—geopolitical tensions, fiscal pressures, and potential inflation surprises—but long-term opportunities in AI and industrial policy-driven investment persist. While uncertainty endures, disciplined investing and diversification remain key to achieving long-term goals.
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