The Toronto Stock Exchange’s (TSX) composite index has trailed U.S. stock indices for several years now, but that could change in 2025, according to BMO.
In the bank’s 13th annual forecast published this week, strategists at BMO predicted that the TSX is set to outperform the S&P 500, in Canadian dollar terms, by as much as 200 basis points next year.
“We think Canada offers value and cyclicality and increase in stock picking, especially relative to the U.S,” said Brian Belski, chief investment strategist at BMO, in an interview with BNN Bloomberg this week.
Belski and his team say the TSX is likely to finish 2025 at 28,500. That’s more than 3,500 points higher than where it is right now, which would represent a return of almost 15 per cent, not including dividends.
Belski is advising clients to invest in Canadian REITs and financials in particular, while they expect weakness in other segments such as health care, telecom and consumer staples.
“You have to be kind of careful, and buy the higher liquidity areas,” he said. “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,” he said.
Belski and the team at BMO think the TSX is poised to outperform, but the projection for the S&P 500 is also solid. BMO expects the benchmark U.S. stock index to finish 2025 at 6,700. That’s roughly a 9.8 per cent increase from the 6,100 level they expect it to finish at this year.
Similar to Canada, Belski thinks there will be some areas of relative strength and weakness depending on the sector in the U.S. The bank has upgraded its outlook for energy and materials, while suggesting the outlook for health care is a little more cloudy.
“We did take some money out of healthcare, we think healthcare should be an underweight in the U.S., especially in the next 12 to 18 months,” he said.
As for technology, Belski said the outsized influence the sector has on U.S. markets will continue. “Large cap tech stocks have become the new consumer staples, and you can throw some communication services in there too,” he said.
Belski said BMO believes they should be core positions but they are more bullish on some of the smaller names in tech. “There will be stronger earnings growth from American lower cap names relative to the higher cap names,” he said.
Belski also voiced BMO’s bearish view on the future of Canadian utility and telecommunication stocks. Belski claimed they were “early in their overweight evaluation,” on telecommunications and have climbed back down to market weight.
“We do think there is better value opportunities in Canada,” he said. “Utilities stocks as a whole, we think, are going to have a harder time to facilitate dividend growth going forward.”