2025 Quarter 4

A Transition from Resilience to Recalibration

The fourth quarter of 2025 marked a distinct period of adjustment for both Canadian and global markets. As we close a year defined by trade uncertainty, shifting monetary policy, and moderating growth, the narrative has shifted from pure resilience to "recalibration."

While growth has slowed and policy has steadied, markets continue to reward discipline and diversification. As we look toward 2026, the focus is now on translating these macroeconomic developments into practical investment insights.

The Economic Landscape: Slowing Growth, No Recession

Despite economic headwinds, Canada successfully avoided a recession in 2025. This stability was largely supported by strong equity markets and policy easing.

• GDP Growth: Real GDP growth slowed to an estimated 1.7%. Momentum faded throughout the year as domestic demand weakened, leaving growth increasingly reliant on the resource sector.

• Monetary Policy: Following meaningful rate cuts earlier in the year, the Bank of Canada ended 2025 with the overnight rate at 2.25%. Economists largely expect rates to remain on hold through at least mid-2026.

• Housing Struggles: Housing remains a significant headwind. National home sales fell 7.7% year-over-year—the lowest level in 25 years—due to affordability challenges and rising listings, particularly in the Toronto condo market.

Market Performance: Canada Leads the Way

2025 proved to be a "blockbuster year" for Canadian equities. The S&P/TSX Composite surged 28.2% on the year, ending Q4 at record highs and significantly outperforming the S&P 500.

Q4 Equity Returns Snapshot

IndexQ4 2025 Return1 Year Trend S&P/TSX Composite5.33%LeadingMSCI World2.49%PositiveS&P 5002.00%Positive

Why Canada Won

The "Canadian Comeback" was driven by a unique convergence of factors that made the market a global standout:

1. ‍Attractive Valuations: Even at record highs, the TSX traded at roughly 16x earnings, a significant discount compared to the 21x earnings seen in U.S. markets. ‍
2. Diversification (Anti-AI): While the S&P 500 remained heavily dependent on mega-cap tech, the TSX offered a "Value" play that appealed to global fund managers seeking diversification. ‍
3. The "Loonie" Effect: A rangebound, slightly weaker U.S. dollar acted as the "secret sauce" for Canadian commodity producers, boosting the value of resource-heavy earnings.

Sector Spotlight: The Drivers of Growth

The Canadian market's outperformance was not accidental; it was driven by specific, high-performing sectors.

1. Materials: The Super-Cycle

The materials sector was the undisputed engine of growth.

• Precious Metals: Spot gold surpassed $4,300/oz in early 2026.

• Silver Surge: Silver saw a speculative surge of nearly 150% year-over-year, driven by industrial demand from solar energy and data centers.

2. Financials: Avoiding the Cliff

Canadian banks, representing a third of the TSX, navigated the dreaded "mortgage renewal cliff" successfully.

• Soft Landing: Banks avoided the credit crisis many feared.

• Margins: A steepening yield curve in 2026 is expected to improve net interest margins.

3. Energy: Defensive Growth

Despite pressure on crude oil prices due to oversupply, the sector pivoted effectively.

• Transition: There was a significant shift toward "green" infrastructure, nuclear power, and regulated assets to provide stable, defensive returns.

Company Spotlight: Lifecore Biomedical

Ticket: LFCR

One of the most compelling opportunities identified for 2026 is Lifecore Biomedical, a premier manufacturer of sterile injectable pharmaceuticals. The company stands to benefit from the aggressive "America First" pharmaceutical policies of the Trump Administration.

The Investment Thesis:

• Onshoring Catalyst: The push to decouple medical supply chains from foreign adversaries (specifically China) is driving a surge in "commercial site transfers" to U.S. facilities.

• Capacity Ready: Unlike competitors, Lifecore has already invested in infrastructure, boasting $300 million in revenue-generating capacity ready to absorb reshoring demand.

• High Growth Market: They operate in the sterile injectables segment, which is growing at approximately 10% annually, driven by biologics and GLP-1 therapies.

• Sticky Revenue: The company maintains 20-40 year relationships with giants like Alcon, protected by the high regulatory barriers of switching suppliers.

Outlook: What to Expect in 2026

Canada enters 2026 with a stable but cautious outlook. Following the strong returns of 2025, the focus remains on modest growth and resilience.

• Economy: GDP is forecast to grow between 1.4% and 1.9%, with resources and agriculture offsetting weaker consumer demand.

• Interest Rates: The Bank of Canada is expected to keep rates on hold (2.25%) for most of the year to support borrowing and investment.

• Equities: Further gains are expected, with Financials, Materials, and Technology projected to lead based on solid earnings.

• Trade Risks: Trade with the U.S. remains a key risk, particularly for tariff-sensitive sectors like steel and autos, though the USMCA review looms.

Q4 marked a transition from resilience to recalibration—growth slowed, policy steadied, and markets continued to reward diversification and discipline.

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^{Disclaimer: This information has been prepared by Grant White who is a Investment Advisor/Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned.}