Monthly Report: Dec 2025

A few topics our newsletter touches on this month:

• Our Thoughts: Taking stock of a strong year
• By the numbers: November
• Interesting Links: Global Insight Monthly, 10 Minute Take podcast
• Arts in Ottawa corner: National Gallery & Holiday Markets

Wishing you and your family a Merry Christmas and a Happy Holiday Season!

Dec photos (Clockwise from top): Mark, Nathalie, Corinne, Sarah & Peter at our year-end lunch; the GWM team at our office holiday party (missing Nathalie); Mark and his daughter Kathleen at the annual fundraising gala for the National Art Gallery.

Our Thoughts: Taking stock of a strong year

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 a 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 this 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.

By the numbers (Nov):

The TSX was up 3.9% while the S&P 500 was up 0.2% in U.S. dollars (flat in $CAD). The Europe, Australia & Far East index (EAFE) was up 0.2%, while the Emerging Markets index went down 2.7%. The Canadian bond market was up 0.3%.

Interesting Listening/Reading:

• Disruptors - A dynamic 30 min RBC podcast co-hosted by John Stackhouse and Sonia Sennik about reimagining Canada’s economy in a time of unprecedented change.
  • Beyond the Battery: Inside Quebec’s Mine-to-Refine Transformation
  • Powering the North: How the Kivalliq Hydro-Fibre Link Will Build A Stronger Canada
  • Feeding the Future: How Saskatchewan is Seeding Canada's Ag-Tech Revolution
  • Link to the World: How Manitoba Is Rebuilding a Northern Trade Route
• To check out our Global Insight Monthly for Nov find the link here.

“Arts in Ottawa” Corner

National Gallery of Canada: Mark had the opportunity to attend the National Gallery of Canada’s annual gala at the end of November (see photo at top of newsletter), which prompts us to want to highlight an upcoming exhibit launching mid-month: Sylvia Safdie: TERRA examines the decades-long career of Montreal-based artist Sylvia Safdie through a selection of her paintings, sculpture and videos. Learn more here, exhibit opens Dec 12^th,2025.

Christmas markets: What better place to check out local artisans and find great Christmas gift ideas then to take in one of the many holiday-themed markets around the city. A few worth checking out:

• Ottawa Christmas Market (outdoors at Lansdowne, every Sat&Sun until Dec 31)
• 613Flea Holiday Night Mark (inside Aberdeen Pavillian at Lansdown Dec 5, 12, 19 5-10PM)
• Artisan Outdoor Market (William Street in the market Dec 6,13,20)

Regards,

Mark, Peter, Sarah, Corinne & Nathalie

Gallivan Wealth Management of RBC Dominion Securities

 

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