U.S. markets to lead the way in 2025, but Canadian stocks will 'do just fine': Mackenzie Investments
"Our biggest sectors – financials, energy and materials – all have things working in their favour right now.”
According to Mackenzie Investments' 2025 market outlook, U.S. equities are expected to outperform global stocks this year. However, Canadian stocks are still positioned to perform relatively well, despite concerns about the domestic economy.
Higher interest rates have significantly impacted Canada’s interest-rate-sensitive economy, leading to slowed growth, as noted in the report. Although real GDP has increased, the per-capita growth, accounting for population growth, has been negative for most of the quarters since 2022. Mackenzie suggests that Canada may require more significant rate cuts than other G7 nations to stimulate a rebound in domestic demand and close the output gap.
In contrast, the U.S. economy is performing better, with Mackenzie’s Chief Investment Officer of Equities, Lesley Marks, stating that "the economic tailwind will be stronger in the U.S." She also pointed out that Donald Trump’s election will bring substantial policy changes, including corporate tax cuts and deregulation, which she believes will be crucial for capital market returns.
Marks acknowledged that U.S. equities are more expensive but emphasized that "the fundamentals for earnings growth are better in the U.S." She highlighted the strong performance of the American economy and sector composition, especially the U.S. consumer and technology sectors, which are expected to remain key drivers.
Despite this, Mackenzie holds a neutral view on Canadian stocks, indicating they are still attractive but not their top choice at the moment. "Our biggest sectors – financials, energy, and materials – all have things working in their favor right now," Marks explained.
Regarding the financial sector, Marks noted that Canadian banks should be able to handle an influx of mortgage renewals this year, thanks to a steepening yield curve. Price targets for Canadian banks have recently increased, driven by improving credit conditions and shrinking loan-loss provisions.
In metals and mining, Marks pointed to underinvestment leading to a supply shortage, ensuring strong long-term fundamentals in the sector. She also mentioned that the energy sector in Canada is expected to benefit from more favorable policies moving forward.
Marks concluded, "There are a lot of things that we think will be good for the major Canadian sectors," adding that the Canadian stock market is generally more tied to the global economy than the domestic one. This global focus should provide a supportive backdrop for Canadian stocks in 2025, though U.S. stocks are expected to deliver better returns.
Mackenzie’s outlook also notes that while domestic economic growth is projected to remain modest, Canada is likely to benefit from U.S. economic strength. "A deteriorating domestic economy should also accelerate the Bank of Canada’s path towards a neutral policy stance, supporting domestic demand and improving corporate earnings prospects," the report concluded, suggesting that this could create room for modest valuation expansion.
