Predicting what Canadian stocks will do in 2025 is about as easy as predicting the final score and outcome of the Super Bowl. You can weigh various factors and determine the odds. Yet, the final result could be completely different to what you could even imagine is possible.
Predicting what stocks will do in the near term is very tough
Thousands of factors and variables can affect the stock market. In the short term (like weeks and months), the performance of the stock market is largely out of an investor’s control. The broader market can swing up and down for seemingly irrelevant or uncorrelated reasons.
Fortunately, in the long run, stocks can be a little more predictable. On average, the Canadian index delivers a 6–7% return. U.S. indices average higher at 8–9%.
Over the long term, Canadian stocks tend to follow the trajectory of their per share earnings/cash flow. It is an investor’s job to sift through the noise to find the stocks that can steadily perform through the market’s ups and downs.
With that in mind, here are two predictions for the Canadian stock market in 2025.
Canadian stocks in real assets could revert to the mean (but there is an if)
The first is that real assets that generate strong income will finally catch a bid in the second half of 2025. Right now, income-yielding bond alternatives have been taking a beating. Despite interest rates dropping, bond yields have remained elevated. Much of this is due to concerns around a North American tariff war.
We are only in the early innings of a potential trade battle. However, if (that is a big if) a compromise or resolution is discovered sooner than many expect, bond yields could start to settle down. That would have an inverse effect on real assets like Canadian real estate investment trusts (REITs) and infrastructure stocks (like pipelines).
Likewise, with concerns about trade issues, safe domestic assets that generate stable income could become attractive to hold. First Capital REIT (TSX:FCR.UN) has a high quality portfolio of grocer-anchored retail properties across Canada.
Even if a recession hits, people need groceries, pharmacies, discount stores, and doctors’ clinics. These make up a majority of First Capital’s tenants. Due to its excellent locations, it has been enjoying high single-digit rent growth.
Despite its strong fundamentals, this Canadian stock trades at a material discount to the private market value of its assets. At some point, investors will return to the unloved REIT space. First Capital could enjoy material upside.
Specialized, niche software stocks could outperform in 2025
Another prediction is that Canadian tech stocks with specialized niche applications should do well through tough economic times. Descartes Systems Group (TSX:DSG) could be a shining star in 2025. It provides software solutions for the logistics, transport, and supply chain sectors.
It has solutions to help companies manage the impact of tariffs and taxes on cross-border shipments. If there is a great emphasis on trade compliance, Descartes’ solutions will be in high demand. The cloud-based logistics and supply chain solutions provider tends to see a boost in demand when there is elevated trade disruption around the world.
Constellation Software (TSX:CSU) is another company that should fare well. Its niche software companies tend to operate very close to their customers. That means that they are often the locally preferred solution for specific industry solutions. Its software is often crucial to its customer business operations.
I don’t see a trade war disrupting their business much at all. In fact, a tough economy could be a net positive for Constellation.
The acquisitive firm can opportunistically deploy capital into cheap software businesses that are facing near-term challenges. Overall, this Canadian stock could continue to perform well in light of some of the potential economic challenges to come.
