You have a better chance of predicting the weather in Canada than you have predicting the stock market in 2025. At least Canada has some clearly defined seasons that provide a predictive range for how the weather should behave.
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Humans love to rationalize the future
As humans, we constantly want to rationalize the future. By making predictions, it helps us feel like we have more control over the future. Even if our predictions are dead wrong, it still feels good to make them.
We live in a crazy world (and it might just get crazier) that is very unpredictable. However, here’s a shot at some zany market predictions for 2025.
There will be a fairly substantial pullback in Canadian stocks in 2025
The first prediction is that the TSX Index will pull back at one point by over 10% in 2025. Last year, the TSX rose 20%. That was nearly three times the average annual TSX return. In 2023, the TSX only increased 8%.
Market performance in Canada and the U.S. has been above average for a couple of years. Last year had very little volatility. As a result, it wouldn’t be a shock if we saw a return of higher volatility in the market.
Keep in mind, this prediction is hardly zany. Most stocks correct by at least 10% in any given year. However, if I keep my prediction as general as possible, it is more likely to be right. This one trick market prognosticators and gurus use when trying to sound smart in the media.
Stocks in real assets should catch a bid (finally)…
The second prediction is that stocks with real assets could have a good year. Real estate investment trusts (REITs) are trading at multi-decade low valuations. While interest rates have declined (which is generally a positive for REITs), their stock performance has been neutral to negative in 2024.
REITs like Dream Industrial REIT, BSR REIT, and First Capital REIT trade at significant discounts to the private market value of their assets. This doesn’t reflect their potential to demonstrate mid- to-high single-digit cash flow per unit growth in 2025.
Not only will you collect a nice distribution yield from REIT stocks, but you could see attractive stock upside as valuations revert upwards towards the mean.
High-quality stocks with international exposure are the place to be
The third prediction is that high-quality companies with global exposure (not just to Canada) will outperform the market. Stocks like Descartes Systems, Constellation Software, and Colliers International are all globally diversified with operations around the world.
Descartes and its trade/logistics solutions are especially well-positioned if a trade war erupts between the U.S. and the world.
Constellation is just so diversified by industry and geography that it should perform resiliently through most economic challenges.
Colliers has a widening mix of recurring services businesses around the world. It should benefit from interest rates continuing to decline and recovering commercial real estate activity.
The Foolish takeaway
At the end of the day, any investment in a stock is a prediction of its prospects. In the near term (days, weeks, and months), it is very hard to predict what any stock might do.
However, in the long term, stocks follow the trajectory of their earnings/cash flow per share growth. If a business has a record of profitably growing, it is likely to continue doing so in the future.
Focus on the highest-quality businesses in any industry or sector, have a diversified portfolio, and be patient, and you can do very well over years and decades. Fool on!
