Toronto — December 7, 2025
Canada’s main stock market barometer, the S&P/TSX Composite Index, ended the week just shy of a record, slipping on Friday but still sitting near all‑time highs and firmly in the global “world indices” leadership pack.
After setting a record closing high around 31,477 points on Thursday, December 4, the S&P/TSX Composite fell 166 points (about 0.5%) on Friday to close near 31,311, leaving the index down roughly 0.2% for the week. [1]
Even with the modest pullback, the TSX remains up in the mid‑20% range year‑to‑date, putting it among the strongest performers in developed markets thanks to powerful gains in materials, financials and energy, plus support from all‑time high gold prices. [2]
Profit-taking and sector rotation drove Friday’s pullback
Friday’s decline was less about bad news and more about investors locking in profits after a powerful autumn rally.
- Reuters reports that the index gave back 0.5%, with traders taking money off the table after Thursday’s record close. [3]
- A Canadian strategist described the move as a healthy year‑end consolidation: investors have been trimming winners and rotating out of weaker positions ahead of 2026. [4]
- Several Canadian press reports also highlighted year‑end tax‑loss selling, with some investors intentionally crystallizing losses in underperforming names to offset capital gains from this year’s winners. [5]
The sector breakdown underscores that this was a rotation, not a panic:
- Materials—a heavyweight group on the TSX—fell about 1.1%, dragged down by a double‑digit drop in Orla Mining after a major shareholder, Fairfax Financial, sold a large block of shares. [6]
- Technology slipped roughly 0.8%, weighed by a decline in e‑commerce giant Shopify, a key TSX growth bellwether. [7]
- Industrials, including the big railways, also finished lower, adding to the modest index‑level retreat. [8]
Viewed in context, the S&P/TSX Composite is still only a couple of hundred points below its record, and the week’s movement is consistent with a market that has run hard in 2025 and is now pausing rather than turning. [9]
Blowout jobs data and a steady Bank of Canada: a supportive macro backdrop
Paradoxically, the TSX dip came on the same day that Canada posted very strong employment data.
- Canada added about 53,600 jobs in November, far above expectations for a small decline, pushing the unemployment rate down to a 16‑month low. [10]
- Economists told Reuters the report confirms that Canada’s economy is in better shape than many expected just a few months ago, even in the face of U.S. tariff uncertainty. [11]
This labour strength dovetails with a Reuters poll released December 5, which shows: [12]
- The Bank of Canada (BoC) is expected to hold its policy rate at 2.25% at the December 10 meeting.
- Most economists surveyed think the BoC is done cutting rates at least until 2027, after delivering a hefty 275 basis points of easing since 2023.
- The same poll suggests Canada’s economy grew about 2.6% last quarter, beating expectations, and that housing prices, which have fallen roughly 3% this year, are likely to rise again in 2026 and 2027 as low rates and fiscal spending feed through.
For equity markets, this combination—firm growth, low but stable rates, and a resilient housing market—is typically constructive. It supports banks, rate‑sensitive sectors like real estate, and cyclical businesses tied to domestic demand.
RBC Wealth Management’s latest 2026 Canada outlook also points to a steeper yield curve, with short‑term yields falling as the BoC cut rates, even as longer‑term yields drifted higher due to fiscal worries. [13] That mix makes longer‑dated government bonds more attractive relative to corporate credit, but it also signals investors are pricing in a more durable expansion, not a looming recession.
Quarterly index review: new names join the S&P/TSX Composite and TSX 60
Beyond the day‑to‑day moves, index composition itself is changing, which will matter for institutional investors and ETF flows.
On December 5, S&P Dow Jones Indices announced the results of its quarterly review of the S&P/TSX Composite Index and the S&P/TSX 60, with changes taking effect before the market opens on December 22, 2025. [14]
Among the most notable additions to the S&P/TSX Composite: [15]
- Allied Gold Corp (AAUC) – Materials, Gold
- Bitfarms Ltd (BITF) – Information Technology, Application Software / crypto‑linked mining
- Lithium Americas Corp (LAC) – Materials, diversified metals & mining, tied to EV and battery demand
- Strathcona Resources (SCR) – Energy, oil & gas exploration and production
- Silvercorp Metals (SVM) – Materials, precious metals
- Canadian Apartment Properties REIT (CAR.UN) – Real estate, multi‑family residential REIT
For the S&P/TSX 60, which concentrates the largest and most liquid names, Celestica and Fairfax Financial are among the companies being promoted into the blue‑chip benchmark, strengthening its tilt toward technology hardware and financial services. [16]
These changes reinforce long‑running TSX themes:
- Canada’s index is heavily leveraged to commodities, especially gold, base metals, and energy.
- There is a growing representation of “picks and shovels” plays for AI and electrification, such as lithium miners and high‑end electronics manufacturers.
- Crypto‑linked stocks like Bitfarms are also finding a place in mainstream indices, adding a dash of volatility but also aligning index exposure with newer digital‑asset themes.
Index rebalancings often create short‑term trading flows, as index funds and closet indexers adjust, but they also tell a story about which sectors and business models are rising in importance for the Canadian market.
Strategists’ 2026 outlook: TSX seen hitting new highs, but gains may slow
A series of fresh outlooks released over the past two weeks are converging on a similar message:
The S&P/TSX Composite is expected to make new highs in 2026, but at a slower, bumpier pace than 2025.
1. Reuters TSX poll: modest upside, still leadership potential
A late‑November Reuters survey of equity strategists and portfolio managers projects the S&P/TSX Composite to rise to around 32,125 by the end of 2026, roughly 5% above late‑November levels and slightly above where the index trades now. [17]
Key takeaways from that poll: [18]
- The TSX has already gained about 24% in 2025, its best run since 2009.
- Analysts still expect further upside, supported by potential easing of U.S. trade tensions and booming demand for Canadian energy and critical minerals used in AI and electrification.
- At the same time, many respondents warn of a possible correction in the next few months, given how far valuations have run and how central gold and resource strength have been to this year’s rally.
2. RBC and AGF: Canada remains attractive, but valuations are higher
Two major Canadian asset managers updated their views this week:
- RBC Wealth Management notes that in 2025 the S&P/TSX is on track to deliver one of the best returns among developed equity markets, helped by record gold prices and improving conditions for domestic lenders. [19]
- They estimate the index trades around 15.9× forward earnings, above its long‑term average of 14.7×, but still at a much lower multiple than the S&P 500, which they peg above 21×. [20]
- That “modest premium,” they argue, raises the bar for earnings, but also offers some cushion if global markets see a pullback.
- AGF Investments, in a December 2 note titled “After a Blockbuster 2025, Canadian Equities Look Poised for Growth,” stresses that the main TSX drivers—banks, commodity producers, industrials and technology—remain well positioned into 2026. [21]
- AGF expects only a small further rate cut or an extended pause from the BoC, effectively a year of rate stability, which tends to favour financials. [22]
- They also anticipate slightly faster Canadian GDP growth in 2026, modest CAD appreciation, and supportive prices for oil, copper and gold, all of which are positive for TSX earnings. [23]
3. Model-based forecasts: consolidation before incremental gains
A quantitative forecast from the Financial Forecast Center, updated December 2, projects an average TSX Composite level around 30,784 for December 2025, with values drifting only gradually higher through mid‑2026, into the low‑32,000 range. [24]
With the index already trading above those near‑term projections, this model reinforces the idea of sideways or modestly higher trading rather than another explosive year.
World indices check: how the TSX stacks up globally
Because the S&P/TSX Composite is part of the broader world indices universe, investors are also watching how Canada compares to other major benchmarks heading into 2026.
Europe (STOXX 600)
- Citigroup recently set a year‑end 2026 target of 640 for the pan‑European STOXX 600, implying about 10.5% upside from current levels. [25]
- The index is already up 14% in 2025, still slightly trailing the S&P 500’s roughly 16.6% gain. [26]
- Citi’s strategists prefer cyclical sectors—banks, travel & leisure, basic resources, industrials—and have downgraded European tech to neutral on valuation grounds. [27]
That sector tilt echoes the TSX, where financials and resources dominate, suggesting Canada may continue to move somewhat in tandem with Europe if the global rotation into cyclicals persists.
United States (S&P 500)
Wall Street strategists are sending a slightly louder bullish signal:
- Deutsche Bank’s chief U.S. strategist projects the S&P 500 reaching 8,000 by 2026, an increase of around 18% from current levels, arguing that strong and broadening earnings trends can sustain the bull market even without higher valuation multiples. [28]
- 3Fourteen Research, which correctly called several of 2025’s major market moves, also sees the S&P 500 climbing toward 8,000 over the next 15–18 months, but warns of an “optimism shakeout”—a potential correction in early 2026 as sentiment and positioning become stretched. [29]
Meanwhile, an RBC “Market overview” note published this week argues that there is a “plausible path” to another year of gains across major markets, but likely at a more subdued pace than 2025 and contingent on avoiding recession, delivering earnings growth, and keeping the AI narrative intact. [30]
Taken together, these global calls reinforce the picture investors see when they look at the S&P/TSX Composite on their world indices screen:
- 2025 was exceptional.
- 2026 is likely to be positive but choppier, with lower single‑digit to low double‑digit returns more realistic than another 20%+ year.
Key themes for S&P/TSX Composite investors right now
For investors tracking or benchmarking against the S&P/TSX Composite, several themes stand out after this week’s action and the latest round of forecasts:
- Resilient domestic economy
- Strong November job gains and 2.6% GDP growth suggest Canada is weathering tariff and rate shocks better than feared, supporting earnings in banks, consumer and industrial names. [31]
- End of the BoC easing cycle
- With policy rates likely stuck at 2.25% until at least 2027, according to a Reuters economist poll, the TSX is moving from a “rate‑cut rally” phase into a “wait and see” regime where earnings and global growth matter more than incremental policy support. [32]
- Commodities, AI and the TSX advantage
- Canada’s heavy weighting in energy and materials—about a third of the index—positions it to benefit from ongoing demand for oil, copper, gold and critical minerals used in AI‑related infrastructure and electrification. [33]
- Valuations are no longer cheap, but not extreme
- With the TSX trading modestly above its historical average P/E and global valuations elevated, 2026 likely offers more normal, earnings‑driven returns rather than another easy multiple‑expansion year. [34]
- Index rebalancing as a catalyst
- December 22 changes to the S&P/TSX Composite and TSX 60 will increase exposure to gold, lithium, crypto infrastructure and select financials/tech names, potentially driving short‑term flows and longer‑term narrative shifts. [35]
What to watch in the coming days
Looking ahead from December 7, TSX investors will focus on several near‑term catalysts:
- Bank of Canada decision (December 10) – Markets expect no change, but the tone of the statement and projections will shape expectations for rate hikes in 2026. [36]
- Federal Reserve meeting – A more dovish or hawkish Fed will influence global risk appetite, commodity prices and the relative appeal of Canadian assets versus the U.S. [37]
- Fiscal follow‑through – Canada’s C$280 billion federal budget plan, including C$25 billion for housing, will be monitored for concrete project announcements that could support construction, infrastructure and housing‑linked equities. [38]
- Santa‑rally dynamics – With the TSX still near record territory after a blockbuster year, any late‑December “Santa rally” could push the index to fresh highs—or, conversely, we could see more tax‑driven selling and profit‑taking into year‑end. [39]
Bottom line
From December 5–7, 2025, the story of the S&P/TSX Composite is one of strength with a touch of caution:
- The index pulled back slightly from a record high, driven by profit‑taking and sector rotation rather than deteriorating fundamentals. [40]
- Macro conditions look supportive, with strong jobs data, a BoC likely on hold, and substantial fiscal investment plans. [41]
- Strategists and models broadly expect new TSX highs in 2026, albeit with slower, more volatile gains than 2025, in line with outlooks for other major world indices. [42]
For globally diversified investors scanning world indices, the TSX remains a core pro‑cyclical, resource‑rich market—now entering a phase where earnings growth, sector selection and index changes may matter more than the broad macro tide that carried it so far in 2025.
References
1. www.reuters.com, 2. www.rbcwealthmanagement.com, 3. www.reuters.com, 4. www.reuters.com, 5. www.winnipegfreepress.com, 6. www.reuters.com, 7. www.reuters.com, 8. www.reuters.com, 9. tradingeconomics.com, 10. www.reuters.com, 11. www.reuters.com, 12. www.reuters.com, 13. www.rbcwealthmanagement.com, 14. swingtradebot.com, 15. news.futunn.com, 16. seekingalpha.com, 17. www.reuters.com, 18. www.reuters.com, 19. www.rbcwealthmanagement.com, 20. www.rbcwealthmanagement.com, 21. www.agf.com, 22. www.agf.com, 23. www.agf.com, 24. www.forecasts.org, 25. www.reuters.com, 26. www.reuters.com, 27. www.reuters.com, 28. www.businessinsider.com, 29. www.marketwatch.com, 30. www.rbcwealthmanagement.com, 31. www.reuters.com, 32. www.reuters.com, 33. www.reuters.com, 34. www.rbcwealthmanagement.com, 35. news.futunn.com, 36. www.reuters.com, 37. www.investors.com, 38. www.rbcwealthmanagement.com, 39. www.rbcwealthmanagement.com, 40. www.reuters.com, 41. www.reuters.com, 42. www.reuters.com
