Canadian markets show promise for 2025, with TSX set to outperform US indices, says BMO strategists
The Toronto Stock Exchange's (TSX) composite index, which has lagged behind US stock indices for years, could outperform in 2025, according to BMO.
BMO strategists, in their 13th annual forecast reported by BNN Bloomberg, suggest the TSX could outperform the S&P 500 by up to 200 basis points in Canadian dollar terms.
Brian Belski, BMO's chief investment strategist, stated, “We think Canada offers value and cyclicality and increase in stock picking, especially relative to the US.”
The forecast places the TSX at 28,500 by the end of 2025. This figure, more than 3,500 points above its current level, represents an increase of nearly 15 percent, excluding dividends.
Belski and his team recommend Canadian REITs and financials for investment, while advising caution with health care, telecom, and consumer staples.
“You have to be kind of careful, and buy the higher liquidity areas,” Belski said.
He also expressed confidence in small-cap Canadian stocks over the next decade, saying, “We’re longer-term investors and we love the small cap index in Canada, we think small caps in Canada can do very well over the next ten years.”
BMO's projection for the S&P 500 also points to growth, with an estimated closing level of 6,700 in 2025. This marks a 9.8 percent increase from the expected year-end 2024 level of 6,100.
Belski noted differences in sector performance within the US market, with a positive outlook for energy and materials, but a cautious stance on health care.
“We did take some money out of healthcare, we think healthcare should be an underweight in the US, especially in the next 12 to 18 months,” he explained.
Technology remains a dominant force in US markets. “Large cap tech stocks have become the new consumer staples, and you can throw some communication services in there too,” Belski said.
While large-cap tech stocks are viewed as core positions, BMO favours smaller tech names, expecting stronger earnings growth from these firms. “There will be stronger earnings growth from American lower cap names relative to the higher cap names,” he noted.
The outlook for Canadian utility and telecommunication stocks appears less optimistic.
Belski revealed a shift from an overweight evaluation to market weight for telecommunications, adding, “Utilities stocks as a whole, we think, are going to have a harder time to facilitate dividend growth going forward.”
Despite some sector-specific challenges, Belski expressed optimism about the Canadian market overall. “We do think there is better value opportunities in Canada,” he said.
