Let it be

When the sun rose over Bay Street this morning, the deity looked down upon the financial towers. “Be faithful,” she said, “for I have bestowed upon you a bountiful market. Don’t blow it.”

Bounty, indeed. Equity markets in Canada, America and beyond are days away from scoring the best returns in ages – and all during a year many feared we’d suffer a Trumpian disaster. When trading opened on this Christmas Eve session, the S&P 500 was ahead, year-to-date, by 17.88%. The Dow had gained 14.56%. The tech-heavy Nasdaq was higher by 22.22%. And on Bay, the TSX – Canada’s stock market – had surged during by 28.3%.

It’s been 16 years since our index had a return like that. In fact, this is the second-best showing since way back in 1950, during an explosion in post-war optimism. Much of the credit goes to the makeup of the Canadian market, heavy on financials (we have great banks), resources (oil, baby) and gold (leaping on US$ weakness and Trump anxiety).

Boring, staid, set-and-forget balanced and diversified portfolios have delivered solid double-digit returns for another year running. Meanwhile GIC investors and high-interest savings account holders have made almost diddly on the year after inflation and taxes. Those who fled to cash when the orange guy assumed office and started being weird lost their bet.

But past returns are no guarantee of future profits – as the financial dudes keep telling you. History is a guide. Not a predictor. There are always risks. Always voices telling you that soon a crash will replace cash.

So what do we know about the next year?

First, it probably can’t get any wilder than 2025. This year gave us a White House without guardrails and the most powerful country in the world ruled by a clutch of former podcasters, conspiracy theorists, Fox News personalities and puppy-shooters. Of course Trump is unique, volatile and unpredictable as well as being a racist, misogamist and autocrat. He’s also in the process of using his office to amass great family wealth. Not America’s finest hour.

This was the year we got serious trade wars and tariffs that have led to mass layoffs and disruption for Canadians who make cars, parts or steel and aluminum. The global order in place for eight decades was smashed in a single calendar.

In 2025 Canada shed a woke prime minister with nice hair and replaced him with an economist, global financial figure and central banker who runs marathons and rave-dances to grungy rock. The guy who was sure-thing next PM lost the election and his seat. The Dipper boss was crushed along with his party. And the country embraced a leader who said Job One was to disengage from the Americans – who dominate our economy. Lots of drama.

Despite all this – plus a whopping $80 billion federal deficit, Wexit wackos in Alberta, slagging oil prices, real estate torpor and Doug Ford’s sizzling Ronald Reagan TV ad – our economy did not go into recession. Unemployment went down. Inflation cooled off. Interest rates declined. And the equity market had a party. Rich people got richer.

So, what now?

Anything can happen, but it looks like more stability beckons. Trump’s agenda is no longer a mystery. Carney’s approval rating is solid as he does his nation-building thing. The Bank of Canada will be holding the cost of money level. Corporate profits have exceeded expectations, and should stay that way. House prices have receded and affordability increased. The economy is expected to be flat, but above water. And nobody thinks jobless levels will spike or that a federal election will take place. 2026, in short, should be boring. Praise be.

In the US, not so much. Lots of people fear an AI bubble has been blown, and worry BigTech now accounts for a third of the entire stock market. There are concerns about the Fed, especially with a new Trump-appointed boss soon to take the helm and in light of the president’s campaign to grind interest rates down. That could unleash too much stimulus, leading to resurgent inflation and lousy long-term consequences.

What if AI optimism is overdone? What happens if the Chinese seize leadership on that issue? And how will Trump react if the Republicans are spanked in the midterm elections and he starts looking like a lame duck. An 80-year-old hunk of poultry? Will he become even more radical?

Wall Streeters are still hopeful, seeing gains of 10-18% for the S&P 500 in 2026. They point to lower corporate taxes, reduced interest rates and borrowing costs, slashed regulations and the unbridled potential of artificial intelligence to grease productivity and plump profits. Corporate earnings are projected to increase by about 15% – slightly higher than this year. The Magnificent Seven is expected to account for a lower share of overall returns, with the other 493 stocks in the S&P doing better. A good development.

So, optimism and concerns. Risks and opportunities. Knowns and unknowns. Just like every other year.

That’s exactly why you should stay balanced – growth assets plus safer ones. Stay diversified – invested globally. Stay invested – no emotional retreat to the sidelines. And remain confident.

Like she said, don’t blow it.

About the picture: “In response to your request for canine Christmas pictures, here is Dillon – our 5-year-old Golden Doodle (named after our favorite Canadian Rock Music/Actor idol– Hugh Dillon),” writes Neil.  “She is a treat hound if there ever was one, Santa must have some sweet treats in hand to captivate her attention like that.  Dillon is sporting some Canda Pooch leg warmers, actually more to keep her legs clean but they are quite fashionable in any event, and festive. Thank you very much for all of the financial advice you have offered over the years, it is greatly appreciated.  Financial discussions can be somewhat dry (I know, my wife and I are accountants!) but your spin on them with your unique sense of humor make it much more interesting, and addictive – please keep it coming!”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/12/24/let-it-be/