Change of Guard in 2025?

Igor Manukhov - Dec 13, 2024

Big Trend to Watch for in 2025 – Possible Outperformance of Canadian Stocks vs US Counterparts.

As 2024 comes to a close, I am looking ahead to 2025. By all accounts, 2024 has been a remarkable year for stock market investors. Most markets performed well, but the US has been exceptionally strong once again. In fact, the US has been the best market to invest in since 2011.
 
That might be changing. As you recall, a few months back, I pointed out that Canadian stocks have been outperforming the US since July 2024. In response, I have been reallocating some funds to Canadian stocks by taking funds from the underperforming EAFE (Europe, Australia, Far East) market. However, I have not reduced our overweight position in the US yet. So, the big question: Will 2025 be the year when Canada outperforms the US? BMO’s Chief Investment Strategist, Brian Belski, thinks so. He expects the US to return about 9.8% in 2025, while Canada is projected to return around 10.8%.
 
The chart below shows the relative strength between US and Canadian stocks. The rising black line represents US outperformance. As you can see, the US has given back some of its strength, but at this point, it appears to be neutral relative to Canada. The longer-term trend, represented by a purple line, is flat.
 
If I start seeing that purple line trending downward, this will a signal to shift some more funds from the US back to Canada. I wanted to share my thoughts for 2025 because this potential change could trigger a significant shift in our portfolios.