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The Art Deco facade of the original Toronto Stock Exchange building on Bay Street.Chris Helgren/Reuters
Canada’s main stock index closed out 2025 with its biggest annual gain in more than 15 years, a stunning performance in a year marked by trade and sovereignty threats and a domestic economy that barely stayed out of recession.
The S&P/TSX Composite Index rallied nearly 29 per cent over the past 12 months, even as the so-called Santa Claus rally – a seasonal pattern that typically sees stocks gain over the last five trading days of the year – failed to materialize.
The Canadian benchmark closed lower over the past four trading sessions. But it was still up 1.3 per cent in December, its eighth consecutive monthly advance in a streak not witnessed since 2017.
On an annual basis, it was its strongest performance since 2009, marking three straight years of gains and outpacing the S&P 500 Index in the United States, which rose 16.4 per cent in 2025.
The S&P/TSX Composite tracks the performance of 218 companies on the Toronto Stock Exchange and illustrates the kinds of returns many investors saw in their Canadian equity portfolios this past year. When including dividend payouts, the annual return for the index was 32.2 per cent.
Much of the TSX’s outperformance was thanks to a doubling in value of the heavily weighted materials sector, which was chock full of precious metals stocks that surged off the back of 65-per-cent gain in the price of gold this year, its steepest annual rise since 1979. The metal’s rally has been driven by a cocktail of factors, including the U.S. Federal Reserve’s interest rate cuts, geopolitical flashpoints, robust central bank buying and inflows into gold exchange-traded funds.
Nearly all the TSX subsectors, however, were higher for the year, including a more than 30-per-cent jump in financials. Even the consumer sector, closely linked to the fortunes of the economy, gained more than 15 per cent.
All told, it was the second-best annual performance this century for the Canadian index.
“Amazingly, this was in spite of a middling performance by its smallish tech sector, and late-year weakness in its large energy component,” Douglas Porter, chief economist with BMO Capital Markets, said in a recent note. “The solid gains by a variety of domestically oriented sectors reflected the surprising stability of domestic demand – albeit retail sales volumes were essentially flat from a year ago in October – and is a hint of potentially better times ahead in 2026.”
A bullish spirit, meanwhile, continues to run rampant on Wall Street, and another year of gains in the major U.S. indexes would be a shot in the arm for the TSX. The average forecast in a recent Bloomberg survey of 21 big banks and investment firms implied another 9-per-cent gain in the S&P 500 by the end of 2026.
Stock bulls point to the upbeat outlook for U.S. corporate profits. Earnings among S&P 500 companies are projected to gain more than 15 per cent in 2026, on the back of a solid 13-per-cent rise in 2025, according to LSEG data.
That said, few investors expect a repeat of the 2025 rally in the new year, especially in the Canadian market that saw such formidable gains in the precious metals sector.
“The concern that I have is that if we do have a shift in the commodity cycle, how much does that actually deflate the exuberance that we’re seeing right now?” said Shiraz Ahmed, chief executive officer of Sartorial Wealth.
Many analysts also advise caution in a year that will bring fresh doubts about the sustainability of the artificial intelligence revolution and volatility surrounding still-unsettled tariff issues and the U.S. midterm elections. Valuations, especially in the high-flying tech sector in the U.S., are running dangerously high relative to historical norms.
“After several volatile years marked by inflation shocks, rapid rate changes and geopolitical risk, expected returns are likely to be more moderate and uneven,” cautioned Anish Chopra, managing director at Portfolio Management Corp.
The Federal Reserve’s decisions on monetary policy will be key for markets in the U.S. and Canada next year. Recent economic data and expectations of a dovish new Fed chair have prompted investors to price in further reductions to the central bank’s trend-setting interest rate. Yet, uncertainly on the trajectory of U.S rates is running particularly high heading into 2026.
On Wednesday, the S&P/TSX Composite closed down 0.4 per cent at 31,712.76 points, its lowest level since Dec. 19. The mining sector led losses on the TSX as gold and silver prices slipped, with materials and gold stocks both declining 0.5 per cent.
The S&P 500 lost 50.74 points, or 0.74 per cent, to close at 6,845.50 points.
With reports from Reuters
