Map courtesy of the CIA World Factbook

Justin Trudeau has been ousted. The good-looking manicured and groomed face of leftist policies will remain in place as Prime Minister until the Canadian election is held this year. Canada is the top trading partner of the United States, barely above Mexico in the order of international trading partners. The last few years have been rangebound for Canadian stocks on a dollar-adjusted basis for investors under his social, business and tax policies. And now there is a power vacuum until Trudeau and the government is replaced.

Investors should be asking if it’s a good time in 2025 to invest in Canada or whether they should sit it out and wait for more clarity. Tactical investors simply want to invest where they think their capital will perform the best.

Tactical Bulls has looked into multiple fresh reports on whether or not now is a good time to invest into Canada. They are forecasts and no investors should ever consider any forecast as a guarantee. In fact, some forecasts prove to be the exact opposite direction of what was expected.

Canada has some characteristics that will sound similar to the U.S. Housing is weak but employment is generally considered to be better than expected. Factory orders and wholesale trade are showing mixed data. The differences are that Canada’s unemployment rate is higher at 6.8%, its interest rates are about 1 full point under the U.S., it has a weaker currency, and some of the tax changes under Trudeau need to be addressed for investors to feel confident. And, of course, the incoming Trump tariffs need to be sorted out into what will actually happen rather than what may happen.

The following points are excerpts from multiple reports which are intended to show the problems and perhaps some potential outcomes for investors who may be considering moving some assets into Canada’s stock market. Unfortunately, there is not a single outcome that looks set in stone as of this time. Tactical investors may look for more certainty elsewhere, but what about long-term “value” buyers?

EARNINGS GROWTH AHEAD

One report comes from Rosenberg Research calling for 2025 to be good for investors in Canada. Profits are expected to have risen over 5% in Q4 and the 2025 outlook is for TSX to rise 11% in 2025. The firm sees technology, materials, staples and healthcare as the top sectors for this year. Communications, utilities and energy stocks are considered the soft spots in the outlook.

WHAT ABOUT THE LOONIE?

Morningstar sees a grim outlook for the Canadian Dollar in 2025. After falling 8% against the U.S. dollar in 2024, to a 2-decade low, there are fears that the loonie could continue to weaken in 2025. Higher unemployment, lower interest rates and tariffs are just some of the risks.

ON MORE RATE CUTS IN CANADA

BMO Capital Markets has recently opined that stronger jobs data in Canada may temper some Bank of Canada rate cut expectations in 2024. Sound familiar? CIBC took the other side of the coin calling for rate cuts to continue as unemployment remains high and with slack in the jobs market and wage growth decelerating.

TARIFFS HITTING GDP?

Capital Economics predicted in January that Canada’s GDP and the loonie could fall farther in 2025. The forecast was as much as 3% lower on GDP and another 10% hit to the loonie — if Trump imposes an across-the-board 25% tariff on Canadian imports coming into the U.S.

BARCLAYS’ VIEW

Barclays is less positive, noting poor domestic fundamentals, tariff risks, no Congress and an election campaign that still has to be held. Barclays view is that the risks could lead to an ultimate 19% drop in the loonie and any bounces may be short lived.

INEVITABLE TARIFFS?

The Bank of Nova Scotia has recently opined that a tariff is likely inevitable at this point. One of the bank’s economists also called for Canada to retaliate using measures that would cause maximum turmoil to the supply-chain in response. BNS also noted that a trade war could hamper a new conservatives government’s ability to introduce tax cuts and harder to improve Canada’s budget deficits. A new liberal party leader may also have to adopt a less aggressive path than what was seen under Trudeau.

A FIRM VIEW

BofA Securities issued a report after Trudeau’s resignation. With an election deadline of October this year, the new leadership vacuum uncertainty “could delay investment given the potential changes in US policies towards Canada.” It also noted that the Conservative Party has a significant lead of 24 percentage points over the incumbent Liberal Party.

S&P HAS SOME CAUTION

S&P’s key themes for 2025 in North America warns that Canada’s economy would be damaged by US tariffs even with temporary fiscal relief reflecting lower US demand and higher import costs for consumers. The report said:

Geopolitical uncertainties, notably in trade relationships with the US, are likely to dampen investment spending and hiring. Canada’s labor market faces excess supply as hiring demand wanes. In turn, we forecast slowing consumer spending as wage growth slows, initially putting downward pressure on inflation temporarily prior to the impact later in 2025 from tariffs. The Bank of Canada is likely to react to growing excess capacity in the economy and labor market with additional monetary easing in the first two quarters of 2025.

THE ETFs HAVE LAGGED THE U.S.

With a 23% gain for the S&P 500 in 2024 for the United States, Canada’s tracking ETFs just are not showing much of the same gains even if they are close to multi-year highs.

The iShares MSCI Canada ETF (NYSEArca: EWC) is the main Canadian stock ETF and it tracks Canada’s stocks. The index is up 11% from a year ago, but the index is only up about 33% since the end of 2019.

The Franklin FTSE Canada ETF (NYSEArca: FLCA) has shown a slightly better 13% gain versus a year ago, but similar trends going back to 2019.