U.S. markets to lead the way in 2025, but Canadian stocks will 'do just fine': Mackenzie Investments

U.S. markets to lead the way in 2025, but Canadian stocks will 'do just fine': Mackenzie Investments

U.S. equities are expected to outperform global stocks this year, according to Mackenzie Investments' 2025 market outlook. However, Canadian stocks are still positioned to perform well, despite concerns about the domestic economy.

Higher interest rates have weighed on Canada’s interest-rate-sensitive economy, dampening growth substantially, Mackenzie says in its report. While real GDP has grown in Canada, the per-capita rate that factors in population growth has been negative for most quarters since 2022. Mackenzie notes that “Canada’s economy may need rates to fall by more than other G7 economies to stimulate a rebound in domestic demand and close the output gap.”

The U.S. economy, on the other hand, is a different story.

“The U.S. economy is performing much better than Canada, and we expect Canada to continue to be weak, so the economic tailwind will be stronger in the U.S.,” Mackenzie’s chief investment officer of equities Lesley Marks said in an interview with Yahoo Finance Canada. She also notes that the election of Donald Trump will bring material policy changes to the White House, including corporate tax cuts and deregulation, which she expects will “be a very important driver of capital market returns.”

“Even though U.S. equities are more expensive, we still believe that the fundamentals for earnings growth are better in the U.S.,” Marks said, pointing to the outperformance of the American economy, as well as sector composition that is favourable towards the U.S. consumer and technology sector, which she says will continue to be key.

“Having said that, we have a neutral view on Canadian stocks, which means we like them, they are just not our favourite equity market right now," Marks said.

"Our biggest sectors – financials, energy and materials – all have things working in their favour right now.”

Marks says that when it comes to financials, Canadian banks will be able to manage the slew of customers facing mortgage renewals this year at higher interest rates. A steepening yield curve will also be beneficial for Canadian lenders. Analysts have hiked price targets in recent weeks for some Canadian banks, as credit concerns dwindle and loan-loss provisions shrink.

For metals and mining, Marks says underinvestment has created a lack of supply, so fundamentals look solid long term in the sector. As for energy, Marks says "we also expect to see more favourable policy helping the energy sector in Canada going forward."

“There are a lot of things that we think will be good for the major Canadian sectors," she said.