| Close
Dec 26 | Close
Dec 19 | Weekly
Change | Net Weekly
Change % |
DJIA | 48,710.76 | 48,134.89 | +575.87 | +1.20% |
Nasdaq | 23,593.10 | 23,307.62 | +285.48 | +1.22% |
S&P 500 | 6,929.94 | 6,834.50 | +95.44 | +1.40% |
| S&P TSX | 31,799.76 | 31,755.77 | +43.99 | +0.14% |
Source: Globe & Mail
5 Fun Facts from ’25; 5 Flashy Forecasts for ’26
Douglas Porter, CFA
BMO Chief Economist
This year was a tale of two halves: the trade war dominated
the first half, generating intense volatility, while the AI spending boom took
over in H2, keeping growth on track and markets on the hop. Yet, curiously, through
those two massive drivers, as well as an extreme political makeover in Canada,
growth was close to average, inflation held steady and central banks cut much
as they did in 2024. The resiliency in the face of the trade war kicks off our
list of surprising 2025 stats:
1) After having a near-bear market experience around “Liberation
Day” in April, equities roared back globally to churn out a third straight year
of robust gains. Perhaps most surprising is that Canada (+28%) and Mexico (+30%)
were near the top of the heap, the two very economies most exposed to U.S.
trade. The TSX outperformed the S&P 500 despite omnipresent recession fears
and without the benefit of a sizeable tech sector. Gold played a big role, but
even excluding bullion, the TSX still topped the major U.S. averages.
2) Despite being the primary target for U.S. measures, and a
month of 100%+ tariffs, China’s exports rose 5% in 2025, pushing its trade
surplus to a record above $1 trillion. Amazingly, this was despite a 19% drop
in exports to the USA. Sales to Europe and the rest of Asia stepped in, partly
reflecting re-routed sales to the U.S.. China also reported its first annual
drop in fixed investment since the late 1980s.
3) The currencies of both China and Canada rose this year
despite the trade clouds, but they were far from the strongest major currencies
in the world. Near the top were the Mexican peso—rebounding from a deep sag in
2024—and an almost 14% rise in the euro. That marked the best year for the
common currency in more than two decades, despite the fact the ECB cut more
than the Fed (100 bps vs 75 bps), Europe was under severe U.S. trade pressure
and lost market share in many sectors to China, and despite a lagging tech
sector and fiscal concerns (notably for France).
4) Gold roared, but it wasn’t the strongest commodity—it
wasn’t even in the top two precious metals this year! It was hi-ho-silver away,
as silver more than doubled, while platinum also nearly did so. Notably,
despite this big rally, and strong gains for copper and natural gas, overall
commodity price indexes were roughly flat this year due to softness in oil,
nickel and some crops.
5) Despite widespread concerns over the fate of Canadian
jobs in the face of U.S. trade pressure, employment in fact ended the year on a
surprising heater. Even Canadian manufacturing jobs were reportedly above
year-ago levels by November (according to the LFS, at least). Perhaps the most
amazing stat for the year was that the number of Canadians unemployed was lower
than at the start of the trade war a year ago.
That’s the fun/easy part: Let’s turn to the tougher top 5
forecasts for 2026.
1) U.S. productivity rises much more meaningfully, in part
reflecting the heavy investments in AI. Output per hour is up at a 2.3% a.r. in
the past two years, after the post-pandemic stumble, a bit above the long-run
average of 1.8%. Productivity could approach 3% in coming years—strong, but it
averaged 3.7% per year for six years during the 1997-2003 internet boom. Firmer
productivity allows solid GDP growth without pressuring inflation. Stretch
call: Even Canada partakes in the productivity upswing, as it did in the
internet boom. Slower population growth and Ottawa’s drive to spur investment
will help. The spoiler: U.S. tariffs weigh on some of Canada’s most productive
sectors—autos, metals and forestry.
2) Following two years when every major central bank cut
rates (save the BoJ), more mature economies see hikes than cuts in 2026. Sticky
core inflation in many countries, rising food prices, tighter job markets—and,
yes the AI boom—prompt some rate reversals. Japan is already hiking rates,
while the RBA seems to be next in line. We suspect they will not be the last,
even as the Fed eases further. Still, we don’t currently see hikes in 2026 for
either the Fed (75 bps of cuts) or the BoC (on hold). Stretch call:The AI
“bubble” becomes a real bubble. It takes Fed tightening to pop a bubble, and we
see the Fed going the other way in 2026.
3) The primary reasons why we consider Fed tightening as
only a remote possibility in 2026 are: (a) a new, presumably dovish, Fed Chair
will be in place by May, and (b) we expect U.S. core inflation to ebb slightly
further in 2026. With shelter costs moderating, wages cooling, and productivity
gaining steam, underlying CPI could cool well below 2.5% by end-26. Stretch
call: Canadian inflation ticks above the U.S., something that has happened for
only one full year of the past nine (2019). The end of the carbon tax flattered
Canada’s rate this year; the flattery ends in April.
4) The trade front is quieter, but not silent, in 2026. The
U.S. Supreme Court ruling on IEEPA tariffs, the ongoing tussle with China, the
fraying of some earlier U.S. deals with other economies, and the USMCA review
will keep trade very much on the front burner. However, it will make much less
impact on financial markets or sentiment, as almost everyone has become inured
to the unending wave of drama, as well as because of the limited economic
impact. Moreover, since the trade war doesn’t appear to be a big political
winner, it may be shunted to the sidelines as the U.S. mid-term elections
approach (on November 3). Stretch call: The USMCA does not get fully resolved
in the coming year, and will instead be subject to another review in 2027.
Count us as relative pessimists on the outlook for the trilateral trade
agreement as Canada and the U.S. have struggled to even reach a limited deal
on, say, steel, while the President is clearly not enamoured with the 2020
deal.
5) Canada’s housing affordability improves further, getting
closer to ‘normal’.With interest rates having done all they can, it now comes
down to a further mild correction in prices in Ontario and B.C. and firmer
incomes to improve affordability. But a combination of all three things has
reversed much of the affordability damage from 2020 to 2023. Solid supply
gains, lower borrowing costs and a near-stall in population growth have all
helped right the ship, but it will take time. Stretch call: The office market
improves notably in 2026, after baby steps this past year. The return to office
for many public sector and some financial workers, a lack of new construction,
and underlying job growth should all help strengthen the market after a bleak
stretch.
Frank and Mark.
Source: Globe & Mail, BMO Capital Markets, Bank of Canada, Bloomberg.
Canada
The Canadian economy likely contracted in October, following
modest growth in September. Manufacturing activity slipped, as tariffs weigh,
with the sector contracting for most of
the past two years. Retail volumes fell 0.6%, a third decline in four months. Wholesale
volumes dipped as well, though they have eked out small gains this year. Hours worked fell in the month due to the
Alberta teachers’ strike, which likely also weighed. On the positive side, home sales
crept higher in the month. Despite the various
headwinds, we’re expecting October GDP to fall 0.2%, a tick above Statcan’s -0.3% flash estimate. Either way, Q4 looks to
have started off on the back foot, making the November flash estimate key to whether
Canada can avoid the second quarterly contraction of the year.
YTD, the TSX up 28.60%, and the benchmark 10-year yield ended the week to yield 3.46%. .
U.S. & Global
After rebounding 3.8% annualized in Q2, real GDP growth
likely slowed to a still[1]solid 2.8% in Q3.
Declines in residential and non-residential construction (apart from data
centres), and federal government spending, should lead the downshift. On the flip
side, consumer spending could rise 2.7% due to the wealth effect. Meantime, AI[1]related business
spending should remain strong. Declining imports will also lift growth, a
temporary fillip after tariff front-running earlier this year. On a
year-over-year basis, GDP likely grew 2.0%, slightly above potential, as the AI
boom is masking the ill effects of the trade war. Growth will slow further in
Q4 due to the government shutdown, before rebounding in the new year.
YTD, the DJIA is up 14.49%, the NASDAQ is up 22.18%, and the S&P 500 is up 17.82%. The 10-year Treasury yield ended the week to yield 4.15%.
Source: BMO Capital Markets
The Good:
No news this week.
The Bad:
No news this week.
The Good:
No news this week.
The Bad:
No news this week.
Wierd News
Source: Associated Press
Last US cents sold at auction for $16.76 million were worth a pretty penny
To those who argue that the U.S. penny had no value: some
coin collectors beg to differ.
In fact, they doled out millions for the final pennies
circulated in the U.S. before the government ended the cent’s production back
in November.
The U.S. Mint sold 232 three-cent sets for a whopping sum of
$16.76 million at an auction last Thursday hosted by Stack’s Bowers Galleries.
The 232nd set — containing the last three pennies ever made
— sold for $800,000. That bidder also got the three dies that struck those
Lincoln cents.
John Kraljevich, director of numismatic Americana at Stack’s
Bowers, said it was the kind of auction where you don’t know the items’ market
value until people make their bids.
“I’ve been going to coin auctions for 40 years, and I can
tell you, I’ve never seen anything like this, because there’s never been
anything like this,” Kraljevich said.
Stack’s Bowers President Brian Kendrella said: “They
captured the public imagination like few rare coins we’ve ever handled.”
When it was introduced in 1793, a penny could buy a biscuit
or a piece of candy. Now most of them are tucked away into jars or junk
drawers.