January update
The Markets (as of close December 30, 2025)
The TSX is up 2.46% in December and up 28.5% year to date
The S&P is up 1.23% in December and up 16.8% year to date
The NASDAQ is up 0.6% in December and up 20.8% year to date
I read and listen to a lot about the markets and wanted to add some colour to this year’s markets. Comments are predominantly U.S. centered, but as they are the strongest economy in the world, what happens in the U.S. ultimately affects the rest of the world.
*There is a divorce between what people see in the economy and what people feel
*Many were expecting an inflationary effect from tariffs, people were expecting a recession but that hasn’t materialized
*The economy is unexpectedly normal – not acting as people expected
*Layer of policy chaos built on top of an economy which is surprisingly resilient. It seems more “deals” than policy surround tariffs. Headlines are effective and people have short memories.
*Economies are murky at the best of times, and data collection has been spotty through things like the U.S. government shutdown. One sector is doing phenomenally well – tech, A.I. and the adjacent things.
*Typically, markets don’t deal well with uncertainty as we saw a huge reaction in the market at the beginning of 2025. More surprisingly, is how fast the markets recovered after the initial reaction.
*We are referring to the economy as K shaped – an uneven economic recovery where different groups diverge sharply. The upward arm is high income households which have benefited from rising asset prices, continued spending; the lower arm – lower and middle income individuals struggling with inflation on essentials, job insecurity and slower wage growth which leads to financial stain.
We came into 2025 with the S&P500 falling 20% between Inauguration Day (January 20) and “Liberation Day” (April 2). April 8, President Trump announced on Truth Social “This is a great time to Buy”. The market turned that day and has increased 40% since April 8.
Most of the gains in the TSX were from the materials sector (gold) while many traditional “safe haven” investments underperformed. Precious metals had its biggest jump since the 1979 oil crisis. I don’t own gold for clients but many other securities had strong years. In Canada, those securities include – RBC, TD, Shopify, Toromont and Cameco.
In the S&P500, commonly held winners include Alphabet (Google), Broadcom, Amphenol, JP Morgan, Raytheon and Microsoft.
The USD declined almost 5% to the CAD this year – not always the “safe haven” that we think. All performance is brought back to CAD and the gain in the CAD mutes USD performance. Sometimes it’s not what you own, it’s what you don’t own that contributes to performance.
From Portfolio Advisory Group (from Dec 12, 2025)
Approaching the final stretch of 2025, the Canadian and U.S. economies appear well-positioned to extend their expansions. Strong earnings delivery, a favourable policy mix, and abating trade uncertainty are expected to help bolster growth prospects and support financial markets. We explore these themes in more detail below.
Macro Musings
Canada’s economy is on track for a rebound after the sharp contraction in Q2, with the recovery fueled by normalizing trade flows and improving labour market conditions. A pickup in job creation in October helped nudge the unemployment rate lower, while real GDP is projected to rise by 0.5% in Q3 as resilient domestic demand offsets weakness in trade-oriented industries. Looking ahead, momentum is expected to build further, with growth forecast to accelerate to 1.0% in Q4 2025 and reach 1.5% by Q2 2026 before settling near 2.0% in the second half of next year. However, the upcoming USMCA re-negotiation is a key risk we are monitoring that could inject uncertainty into the outlook.
South of the border, the U.S. economy remains firmly in expansion mode, with real GDP expected to advance by 2.9% in Q3 before slowing to 1.0% in Q4 and returning to steady pace of around 2% in 2026. Household spending remains the primary driver, with government outlays and business investment also adding modest tailwinds. Although consumers have so far absorbed tariff-related pressures relatively well, recent retail sales data underscore risks tied to an uneven “K-shaped” economy in which spending strength is increasingly reliant on higher-income households. Nevertheless, solid wage gains, strong household balance sheets, and the prospect of lower borrowing costs should help sustain consumption over the coming quarters.
Corporate Fundamentals
A broadly constructive outlook for corporate profits remains an important pillar for equity markets. For both the S&P/TSX Composite and S&P 500, earnings are on pace to grow roughly 13% this year, with another low double-digit increase anticipated in 2026. While valuations remain elevated relative to historical norms—providing a narrower margin of safety against negative surprises—consistent earnings delivery can help companies grow into these valuation levels and provide a fundamental anchor for equity markets to sustain their uptrend over the next 12 months.
Central Banks
Market-implied probability for a Federal Reserve rate cut in December has been volatile, influenced by mixed signals from the labour market and policymakers. While markets have largely priced in a 25-basis-point reduction next month, Fed officials are not entirely aligned on the near-term path of rates amid lingering inflation concerns. Looking further out, the futures market reflects expectations for roughly 100 basis points of rate cuts over the next 12 months. In our view, this interest rate path, along with the direction of U.S. bond yields, remains heavily dependent on the evolution of labour market trends, economic growth, and inflation dynamics.
In contrast, interest rate expectations in Canada are relatively modest. The 5-year Government of Canada bond yield―a key benchmark for fixed mortgage rates―has drifted lower in recent weeks but remains above levels seen in October ahead of the Bank of Canada’s (BoC) rate cut last month. For now, the BoC has adopted a “holding bias”, with policymakers keen to evaluate the effects of the recently announced federal budget, which should provide some stimulus to the economy. Markets broadly agree, anticipating the policy rate will hold steady at 2.25% over the next year.
Takeaway
Equity markets have continued to climb the proverbial “wall of worry”, delivering worthwhile returns for investors year to date. While risks persist―including U.S. policy unpredictability, rich valuations, and increased market concentration in AI-linked companies―the ongoing economic expansion offers a constructive backdrop for corporate earnings, which should remain supportive into 2026. Balancing the risks and opportunities, we remain invested and diversified, maintaining equity exposure near long-term strategic allocation levels, and prepared for occasional challenges to the global equity market’s three-years-and-counting uptrend.
Wealth Management and Client Events
We are hosting a seminar entitled Role of the Executor on Tuesday, January 27, 2026 at 12 noon. Our guest speaker is Karen Snowdon-Steacy, Senior Trust Officer, Royal Trust. This event will be in person in our Oshawa boardroom and we will also offer this live via Webex so if you’re interested in joining in from home, we will be sending the link to connect. Here is the link to the invite. https://ca.rbcwealthmanagement.com/karen.robertson/upcoming-events
The TFSA contribution limit for 2026 is $7,000 and I am encouraging clients to contribute early and tax shelter that money for growth. These are great accounts for growing your money in a tax-free nature and offer flexibility for tax free withdrawals. Contribution room is restored the year following a withdrawal and they transfer tax free to a named beneficiary (tax free to both the estate and beneficiary) and probate free. TFSA started in 2009 and the contribution limit has changed over the past 16 years but the total room in 2025 is up to $102,000. Many of my clients have near doubled their investments. This is the power of growth, particularly in an economy where everything seems more expensive
In the Community
Spencer and I volunteered with Durham Children’s Aid on December 9 at the Oshawa Centre helping to wrap gifts. See attached photo of our RBC group.
I am volunteering with Hearth Place Cancer Support Centre again this year on the Gala Committee. Our Gala will be held on April 25 this year and the theme is Mardi Gras. For more information www.hearthplace.org
RBC Partners with a number of companies to help clients thrive and communities prosper. We adhere to a purpose driven, principles led approach to delivering leading performance and creasing value for our clients and communities. Our purpose is the driving force behind the work we do to build a better future for our clients and communities. At RBC Wealth Management, wealth refers to more than finances. It includes a sense of well-being, belonging and prosperity in the communities where we live and work. The following is a snapshot of RBC and RBC Wealth Management’s support for communicates and involvement in initiatives across a range of focus areas. To learn more about our community involvement and our impact – please see the following links.
Community involvement – RBC Wealth Management
Team Notes
I have a replacement for Kim starting on January 12. This Associate has been with RBC Dominion Securities since 1999, she is licensed and excellent with client service. We are excited that she is joining our team. She will be dedicated to administration for our team and Spencer will be assisting with financial planning, wealth planning and portfolio management. Having a third person on my team will allow me to continue to grow and provide better service to clients. We always welcome introductions to people you feel would benefit from working with us and RBC Dominion Securities.
Good health and happiness to everyone in 2026! Thank you for your business.