We’re pleased to share the latest Quarterly Market Update in this edition of Wealth Matters for Dentists.
A Strong Finish: Market Defy Early Expectations
Markets closed 2025 on firmer footing than many anticipated. Early in the year, concerns about trade tensions, artificial intelligence, and a potential global slowdown led some investors to question the resilience of the bull market. Yet markets adjusted as policy responses evolved and economic data proved more resilient than feared.
Market Drivers
Trade policy was a significant source of volatility. Aggressive U.S. tariff rhetoric unsettled markets and triggered sharp equity pullbacks. Rising input costs and slower growth heightened investor caution, but the most severe tariff threats were ultimately scaled back. While tariffs continue to affect specific industries, over 80% of goods still move across the Canada–U.S. border tariff-free under CUSMA, limiting broader economic disruption.
Artificial intelligence remained another key influence. Headlines early in the year focused on a new Chinese entrant claiming a breakthrough capable of disrupting existing AI investments. Technology stocks sold off as investors reassessed risk. Over time, these concerns proved overstated, and optimism resurfaced—demonstrating how quickly sentiment can shift when expectations are elevated.
Economic Data
Canadian Q4 data was mixed. The Bank of Canada delivered its fourth and final rate cut in October, lowering the policy rate by 25 basis points to 2.25%. Governor Tiff Macklem indicated this may be the last cut for some time, noting that trade uncertainty and U.S. tariffs have added costs for businesses and contributed to inflationary pressures. He also emphasized that the current slowdown reflects a structural transition rather than a purely cyclical downturn.
Economic indicators reflected this tension. Manufacturing and services activity both contracted in November, while headline inflation remained moderate at 2.2%, with core inflation staying higher due to persistent price pressures. Earlier Q3 data showed resilience: GDP grew at a 2.6% annualized pace, corporate profits rose, and exporters adapted by redirecting trade beyond the United States. Labour markets also surprised to the upside, with November job gains lowering the unemployment rate to 6.5%, though much of the increase was in part-time positions.
In the United States, Q4 data was delayed by a six-week government shutdown. When reported, Q3 GDP growth surprised at 4.3% annualized, driven largely by higher-income consumer spending and AI infrastructure investment. Despite strong headline growth, personal income was flat and savings fell. The Federal Reserve implemented a final 25-basis-point rate cut in December, while Chair Powell cautioned that labour market strength may be overstated and subject to downward revisions.
Our Perspective
We continue to focus on high-quality businesses with durable cash flows and reasonable valuations. Elevated valuations, concentrated market leadership, and policy uncertainty reinforce the importance of diversification and disciplined selection.
Innovation, particularly in AI, remains a hot topic. While the long-term potential is compelling, profitability across the sector is uncertain. Massive capital is being deployed in data centre development, raising questions about returns, energy capacity, and the broader infrastructure required to support growth. These factors reinforce the need for careful analysis and valuation discipline.
Looking ahead, the mandatory CUSMA review in July 2026 will be pivotal for Canada. In the United State, tax policy, AI investment, and political developments will continue to influence markets. Short-term volatility is inevitable, but for long-term investors, it often creates opportunity rather than risk. Maintaining focus on quality, sustainable earnings, and thoughtful capital allocation remains the best way to navigate uncertainty and capture long-term growth.
Have Questions?
If you have questions about how these trends impact your personal financial plan, let’s discuss them.
Cory Wilson, Wealth Advisor
Email: cory.wilson@protectfinancial.ca
Phone: 416-391-3764
