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Global overview
The U.S. Federal Reserve continued its cutting cycle late in the quarter, while also taking steps to keep money markets well positioned into next year by starting a new lighter version of quantitative easing. The Bank of Canada held the overnight rate at 2.25% after its October cut, effectively signalling that policy is now in a “wait and watch” zone. This collective shift helped calm markets and bolster investor optimism, with growth data accelerating.
The U.S. government shutdown early in the quarter briefly unsettled sentiment and delayed critical economic data, but its broader impact quickly diminished upon reopening. Investors refocused on earnings and found encouragement in a resilient corporate backdrop. Meanwhile, global equities advanced, with leadership expanding beyond the United States. For many, 2025 may be remembered as the year that saw renewed interest in opportunities outside traditional U.S. holdings, as Canada, Europe and Asia all contributed meaningfully to global portfolio returns.
Canadian equities
Canadian equities finished 2025 on a strong note, anchored by resilient performance across sectors and continued support from commodity markets. The S&P/TSX Composite Index advanced 5.6% in the fourth quarter, extending Canada’s position as one of the best-performing developed markets this year.
Materials remained the top-performing sector, rising 11.6% in the quarter and over 98% for the year, fuelled by the ongoing strength in precious metal prices. Beyond materials, the financial sector contributed strongly as the Canadian banks reported consecutive quarters of better-than-expected profit gains.
U.S. equities
While U.S. equities performed well in the latter part of the year, they lagged their global peers. Performance by sector remained skewed toward areas tied to structural growth, particularly large-cap technology and select communication services companies. The more important development was a gradual broadening in participation beyond a narrow group of dominant stocks.
This improvement in breadth suggests a healthier market overall, rather than a purely momentum- or AI-driven rally.
International equities
Outside North America, global equities delivered positive results as investors revisited opportunities in undervalued markets. Strength in Europe and a rebound across key emerging economies marked the quarter, with capital returning to regions that had lagged during much of the previous year.
Fixed income
Fixed income markets offered modest returns through the quarter, as policy easing slowed and yield curves stabilized. Short-term government yields declined, while longer maturities moved slightly higher, leaving returns driven primarily by coupon income. Overall, the quarter rewarded patient investors who maintained balanced exposure rather than chasing volatility.
To hear more about the outlook for the year ahead, tune in to the IG Living Market podcast and read the 2026 Market Outlook for our team’s perspective.
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