In a stunning reversal of fortune, Canadian equities are closing out 2025 with a performance that seemed nearly impossible just eight months ago. The S&P/TSX Composite index is on track for a 29 per cent annual advance, marking its second-best year this century, trailing only the 31 per cent gain recorded in 2009.
A Remarkable Recovery from April Lows
The backdrop in early April was one of profound uncertainty and tension. Former U.S. President Donald Trump had imposed severe tariffs, sparking fears of a trade war and even making alarming remarks about annexing Canada. Political turmoil north of the border added to the market's unease.
However, the landscape shifted dramatically. Trump retreated from the most punishing tariffs, and the appointment of Mark Carney as Prime Minister helped soothe financial markets and cool diplomatic tensions. Canada's economy, with its robust mining sector and globally respected financial institutions, proved to be unexpectedly well-positioned for the new geopolitical reality.
The result was a historic rally. From its low point on April 8, the S&P/TSX Composite index soared by more than 40 per cent. The benchmark notched an incredible 63 new all-time highs during the year, driven by a steady climb over the final seven months.
Mining and Banking Lead the Charge
The engine of this record-breaking year was powered by two traditional pillars of the Canadian economy: materials and financials.
The materials subindex, which includes miners, doubled in value over the course of the year. This explosive growth was fueled by powerful rallies in gold, silver, copper, and palladium, with precious metals hitting new records. The surge was supported by three interest rate cuts from the U.S. Federal Reserve, which made non-yielding assets like gold more attractive, and by investors seeking a safe haven from global trade and geopolitical uncertainties.
Meanwhile, the financials group, which makes up about 33 per cent of the main Canadian index, jumped an impressive 40 per cent. Canada's Big Six banks, including Toronto-Dominion Bank and Bank of Montreal, reported stronger-than-expected profits. The sector benefited from lower interest rates in both Canada and the U.S., a healthy environment for dealmaking, and an improved loan portfolio that required fewer provisions for losses. The advance of Canadian financial stocks nearly doubled that of their U.S. counterparts.
Tech Contributions and Future Outlook
Technology leaders also played a significant role in the index's ascent. Companies like Shopify Inc. and Celestica Inc. contributed a combined 11 per cent to the index's annual gain, showcasing the diversity of the rally beyond resources and finance.
"The numbers themselves are somewhat jaw-dropping," said Philip Petursson, Chief Investment Strategist at IG Wealth Management. "But, I mean, you could sit there and say this is still a well-balanced market that has further upside in 2026."
Looking ahead, analysts see continued support for the market, though perhaps not at the same blistering pace. Petursson notes that while the fundamentals for gold remain positive with central banks expected to keep cutting rates, "it would be foolish to just extrapolate this year's gains into 2026." The U.S. Federal Reserve is projected to implement two more rate cuts in the coming year, which could provide further tailwinds.
The remarkable 2025 performance of the TSX underscores the resilience of the Canadian market and its key sectors, turning a year that began with deep apprehension into one of historic gains and record-breaking optimism for investors.
