By Kyle Prevost on January 2, 2025
Estimated reading time: 8 minutes

Making sense of the markets: Looking at 2025

By Kyle Prevost on January 2, 2025
Estimated reading time: 8 minutes

What does 2025 have in store for Canadian investors? Who knows. But there are some trends to keep an eye on.

Image by Kerfin7 on Freepik

Kyle Prevost, creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course, shares financial headlines and offers context for Canadian investors.

Can we make sense of the 2025 markets?

Stock market predictions rarely age well. (As you can read from our look at 2024.)

There are simply too many variables to accurately predict market outcomes. We can’t even agree on where interest rates will be a year from now, never mind esoteric concepts like how investor enthusiasm could translate into higher stock valuations.

As we attempt to make sense of what could come to the 2025 markets, it’s important to keep in mind that nothing below constitutes investing advice. Our predictions are for informational purposes only and for identifying trends and outcomes that could happen this year.

President Trump will employ tariffs

One of the biggest questions many Canadian business owners and investors have for 2025 is whether incoming president Donald Trump will carry out his threat of large tariffs on Canadian imports into the U.S. (He’s also cited China and Mexico as tariff targets, too.) It’s been said that we’re supposed to take Trump “seriously, but not literally.”

I think we should take him literally.

Trump’s obsession with trade deficits on goods should go pretty badly and may hurt the world’s economy. He needs to show tariff income in order to satisfy the legislative conditions for a big corporate tax cut. Given how vague his request for more border security was, it’s pretty clear the “Tariffer-in-Chief” doesn’t likely care about his goals. Looks like he simply needs a reason for tariffs tied loosely to national security.

While we don’t think we will see a 25% tariff on all Canadian goods, there will likely be pain for the Canadian economy. The strongest probability is that oil and gas get exempted from the tariff, and we might see something like a 10%-to-15% tax on everything else. This will likely trigger a trade war, as Canada applies tariffs to American goods.

Read why this investment advisor is optimistic about the markets in 2025–tariffs or no.

U.S. inflation is back up

Inflation was already a 2025 concern back in 2024, with the anticipated tariffs. Then add on tax cuts plus a massive government budget deficit, and many Canadians and Americans increasing spending due to “the wealth effect” from a booming stock market. This could point to a lot of money spent in 2025. We think there’s a strong probability all the spending could bring inflation back up here and south of the border, and possibly put the brakes on any rate cuts.

If inflation creeps above 3% again, mortgage rates would go back up and the U.S. dollar will continue to strengthen—thus undercutting the trade deficit strategy Trump will be attempting through tariffs.

First half of 2025 just might beat the second half

We think there’s just enough of the election-fuelled “sugar high” in the markets that both the Canadian and American stock markets will continue to go up at the start of 2025. The big Republican win has much of the U.S. suddenly feeling great about the economy, and those animal spirits will continue to push stock up valuations in early 2025.

But, right now, the U.S. stock markets are priced to perfection. If AI doesn’t trigger a productivity revolution, the current valuations of tech companies could look ridiculously high. Canada’s largest companies don’t quite have the same extreme valuations, but we’re still above our long-term price-to-earnings average.

By the second half of the year, we may see tariffs and the strong U.S. dollar begin to drag down corporate earnings in the States. The tariffs could directly hurt Canadian companies from losing some sales in the U.S. And that might shave off profit margins. Additionally, these tariffs may even dampen investor sentiment in Canada and possibly lead to a general malaise before our own election.

Canadian dividend stocks will be back in style

Generally, whenever interest rates come down and Canadian investors start to feel anxious, cash-flowing companies can look more and more attractive—and less boring. Canadian dividend-payers, like utilities and pipelines, tend to borrow a lot of money to pay for projects that may offer a long-term payout. Consequently, lower interest rates can have an outside effect on their bottom line.

Yield-hungry investors in Canada just might start to eye juicy dividends as their guaranteed investment certificates (GICs) mature when they can’t replicate that 5% return that’s insured by the Canada Deposit Insurance Corporation (CDIC).

Falling interest rates also tend to lead to higher profits for banks and insurance companies, which make up about 30% of the Toronto Stock Exchange. Patient Canadian dividend investors may continue to rest easy no matter how volatile stock prices are in 2025.

You can read more about our top pipeline stocks at MillionDollarJourney.com and MoneySense’s best dividends feature.

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Housing prices in Canada might drop

We don’t think housing prices are going to fall in 2025, but we are questioning if they could rise by 6.6% as Canadian Real Estate Association (CREA) has forecasted.

With 5-year bond and 10-year bond rates not falling as quickly as the Bank of Canada’s (BoC) key lending rate is dropping, fixed rate mortgages may go as low as home buyers hope. With decreased immigration targets and negative overall consumer sentiment, home buyers should continue to have more leverage than sellers in the major markets. This is especially true for the glut of condos currently for sale on the market.

Oil will stay below USD$75 a barrel

“Drill baby drill” was heard along the U.S. election campaign trail in 2024. With the volume of American oil exports rising over the past few years, it will be interesting to see if the countries part of OPEC (Organization of the Petroleum Exporting Countries) would be willing to reduce supply in order to keep prices up. At some point those countries are going to get sick of a shrinking market share and cutting overall government revenues. Should that happen, supply might quickly overtake demand, as oil inventories around the world are already pretty full.

With growth in China showing no signs of getting back to its former oil-needing glory, we don’t see where increased demand is going to come from to soak up all the extra oil the world is ready to pull out of the ground.

BYD will lengthen lead over Tesla

Last year, we forecasted that Tesla’s declining profit margins could start to catch up with the aggressive valuation of its stock price. We didn’t foresee, though, Tesla CEO Elon Musk becoming a key cog in the Trump machine.

No matter how much Musk has the ear of the new president, it may not be enough to shield Tesla from the EV competition outside of North America. With Musk now splitting time not only between his various corporate roles, but also as head of the new “Department of Government Efficiency” (DOGE), his eye is pretty far off the ball—it’s fair to say. It looks like he’s doing his best to quash the enviable reputation Tesla enjoyed among eco-conscious consumers. Add on to that that the U.S. government may be cutting subsidies to EV buyers. Tesla could see tough times, no matter what.

However, that doesn’t even account for the corporate freight train headed its way. Build Your Own Dreams (BYD) is one of the most interesting companies in the world. It’s emerged from the intense inner-China competition for the EV market as a lean, mean, electric machine. Toss in BYD investor Warren Buffett’s money, influence and connections, and it didn’t surprise us that BYD recently stated that one out of every five EVs sold in the world today is made by BYD.

The 100% tariff on Chinese vehicles might help Tesla hold its market share in North America, but what’s going to happen in the rest of the EV markets around the world?

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Bye for now

A few years ago, the MoneySense editorial team offered me this column to help readers “make sense of the markets” each week. Hopefully, somewhere along the way, insights were gained and some sense was made.

For now, I’m taking a step back from these weekly columns, due to more demands on my time over at 4 Steps to a Worry-Free Retirement (my retirement planning course for Canadians ages 35 to 70), as well as my role as lead writer at Million Dollar Journey. You’ll still see me kicking around the pages of MoneySense from time-to-time however, so it’s not “good-bye,” just “see you soon.”

I would be remiss if I did not say a big thank you to editor-at-large Jonathan Chevreau and editor-in-chief Lisa Hannam for their help making sense of the markets every week over the past few years. And, of course, a thank you to everyone who read and supported this column over the years.

I’ll finish with a quote I used to conclude my personal finance class with each year.

“An investment in knowledge pays the best interest!”
—Benjamin Franklin

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About Kyle Prevost

Kyle Prevost is a financial educator, author and speaker. He is also the creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course.