Canadian stocks are making a strong showing against their US counterparts, with the S&P/TSX Composite Index outperforming the S&P 500. In 2025, the S&P/TSX Composite Index rose by 28.3%, while the S&P 500 gained 16.4%. Some analysts believe this trend could continue into 2026, driven by Canada's unique market composition and strong performance in key sectors.
Several factors contributed to this outperformance. Canada's market is heavily weighted in materials and financial sectors, which have benefited from rising commodity prices and lower interest rates. Unlike the S&P 500, the TSX has less exposure to tech stocks, shielding it from valuation concerns surrounding the AI sector. Canadian banks wrapped up 2025 with strong earnings, further boosting the TSX. Specifically, The Big Six banks which include TD, BMO, CIBC, Scotiabank, RBC and National Bank generated a combined $16.45bn in profit for the period.
However, some analysts suggest that the outperformance might not be as pronounced in 2026. Brian Belski, CEO and chief investment officer at Humilis Investment Strategies, believes that broader market leadership may favor the more diversified U. S. index. He suggests investors should be more selective in Canadian banks and consider small-cap stocks for opportunities. Despite potential headwinds, the Canadian market is expected to see positive earnings growth across all eleven sectors in 2026.
Despite the strong performance, the number of companies listed on the TSX is shrinking. In 2025, there were only two IPOs compared to 55 delistings, mainly due to take-private deals and consolidation. However, the IPO pipeline is expected to be stronger in 2026, with interest from consumer, resources, fintech, and technology companies.
