Canada's TSX seen higher but trade uncertainty to limit gains: Reuters poll

By Fergal Smith

TORONTO (Reuters) - Canada's main stock index is set to reach a new record high by the end of 2025, helped by lower borrowing costs, but an uncertain outlook for global trade could limit gains and potentially trigger a correction, a Reuters poll found.

The median prediction of 19 portfolio managers and strategists in the February 13-25 poll was for the S&P/TSX Composite index to rise 5.4% to 26,500 by year-end, eclipsing January's record high and close to the 26,550 level expected in a November poll.

The index was then expected to reach 26,710 by mid-2026, a gain of 6.2%, compared with the previous forecast of 27,500.

U.S. President Donald Trump said on Monday tariffs on Canadian and Mexican imports are "on time and on schedule" despite efforts by the countries to beef up border security and halt the flow of fentanyl into the U.S. ahead of a March 4 deadline.

Canada sends about 75% of its exports to the United States.

"Canadian equities are likely to underperform relative to historical averages due to uncertainty around trade policies which is likely to weigh on not just Canadian but global growth," said Tiago Figueiredo, a macro strategist at Desjardins.

"Companies and sectors with greater exposure to the U.S. will likely underperform in the event that tariffs are ultimately implemented between the two countries."

Shares of trade-sensitive companies have already fared badly since Trump was elected on Nov. 5, with snowmobile manufacturer BRP Inc down nearly 17% along with declines for steel, lumber, aerospace and auto parts stocks.

"Uncertainty about trade issues will hamper investment in Canada," said Michael Sprung, president at Sprung Investment Management. "Management is likely to take a very cautious stance limiting deployment of resources."

Eight of 14 analysts that answered a separate question said earnings growth will be slower in 2025 compared with 2024, while 14 of 15 said a correction of 10% or more is likely or highly likely.

"So far, the markets have remained mostly immune to the headlines, but patience and tolerance is being tested," said Philip Petursson, chief investment strategist at IG Wealth Management.

Financial, telecom, real estate, energy and materials shares account for roughly two-thirds of the TSX. Those sectors are expected to escape the direct impact of tariffs or benefit from carve-outs, while analysts say a weaker Canadian dollar and lower interest rates could be a tailwind for the market.

The Bank of Canada has cut its benchmark rate by two percentage points since June to the current level of 3%.

"Uncertainty is high and volatility is likely to pick up in the months ahead," said Angelo Kourkafas, a senior investment strategist at Edward Jones.

"However, the equity bull market will remain intact, in our view, and the tariff impact on the TSX may be less pronounced compared with the impact on the broader economy."

(Other stories from the Reuters Q1 global stock markets poll package)

(Reporting by Fergal Smith, additional polling by Sarupya Ganguly and Jaiganesh Mahesh; Editing by Hugh Lawson)