We’re almost two months into 2025, and it’s already shaping up to be one of the zaniest years for the stock market in recent memory. Global stocks have outperformed U.S. stocks, the TSX has outperformed the S&P 500, and high-priced tech names have been some of the worst performers of the year to date. It’s been an interesting year so far, and it could get even more interesting. In this article, I will share three of my zaniest stock market predictions for 2025.
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Prediction #1: Canadian stocks will outperform U.S. stocks
Consistent with the beginning of the year, I expect Canadian stocks to outperform U.S. stocks for the rest of the year. The reason this prediction is zany is because recent market developments have trained investors to think that U.S. stocks are invincible and always bounce back in short order. However, history shows that the U.S. markets sometimes undergo lost decades (e.g., the 1970s), and in these periods, non-U.S. stocks usually outperform U.S. stocks. The S&P 500’s current Shiller P/E ratio (price to five-year average earnings) is near an all-time high. Usually, when that happens, a correction of some kind occurs. Canadian stocks are presently much cheaper than U.S. stocks, so they should fare better if and when the latter enters a correction.
Let’s take Toronto-Dominion Bank (TSX: TD) and Bank of America (NYSE: BAC) for example. These two banks are quite similar. Both are large, systemically important banks. Both have diversified operations in investment banking, retail banking and brokerage. Both have healthy net margins and returns on equity (ROE). Finally, both are dividend stocks with respectable yields and low payout ratios.
Despite all these similarities, TD Bank stock is far cheaper than Bank of America, trading at the following:
- 11 times earnings
- 2.8 times sales
- 1.3 times book value
The same multiples are far higher for Bank of America (for example, its P/E ratio is around 14). So, TD is cheaper than a comparable U.S. bank. And it’s the same story in tech, energy, utilities, and many other sectors.
Prediction #2: Non-tech stocks will outperform U.S. tech stocks
I expect non-tech stocks to outperform U.S. tech stocks for much the same reason I expect Canada to outperform America:
Tech stocks are pricier than non-tech stocks. Generally speaking, tech stocks have higher expected growth than others, which is why they tend to perform well in the long term. Today, however, U.S. tech stocks are at their steepest valuation since the 2000 dotcom bubble, with the Magnificent Seven stocks being well above 50 times earnings. It takes a truly extreme amount of growth for something to be worth that much, so I’d say U.S. tech stocks will see a correction this year, and non-tech will fare better.
Prediction #3: China will be among the best-performing markets for the year
Last but not least, and perhaps my “zaniest” prediction of the three…
I see China as among the best-performing global stock markets this year. Chinese stocks have long been among the cheapest and most profitable in the world. But until now, there have been few growth catalysts to get investors interested. That’s starting to change. Just recently, the Chinese government started rolling out massive stimulus to support the economy and stock market, and a recent Alibaba earnings release seemed to indicate that China’s policies have been working. So, I think China has great things in store for us this year.
