Market Update – January 2026
A look back at 2025 and the road ahead.
With 2025 now behind us, we have an opportunity to reflect on a year that was often uneven, but constructive for long-term investors. Inflation pressures eased across much of the global economy, interest rates began moving toward more normal levels, and markets showed resilience despite periods of geopolitical and trade-related uncertainty.
As we enter 2026, the economic backdrop continues to evolve. Central banks are shifting away from the aggressive tightening cycles of prior years, supply chains are adjusting to a changing global environment, and corporate earnings expectations have become more balanced. What follows is a brief look at how the Canadian, U.S., and global economies navigated 2025, and what that may mean looking ahead.
Canada
Canada’s economy expanded at a modest pace in 2025, with gross domestic product growth estimated at 1.2 to 1.8 percent, reflecting a slower pace than in 2024 as higher interest rates continued to weigh on economic activity. As inflation moved closer to the Bank of Canada’s 2 percent target, policymakers were able to begin easing monetary policy, helping reduce borrowing costs for households and businesses. The year ended with the overnight rate at 2.25 percent.
For many Canadians, this translated into a period of slower growth but improving stability. Borrowing costs stopped rising, inflation pressures eased, and financial conditions became more predictable. Housing remained a key concern, particularly as low-rate mortgages issued earlier in the decade came up for renewal, but slightly lower rates and slower population growth helped reduce some of the most intense pressures seen in recent years.
United States
The U.S. economy continued to play a key role in global markets in 2025. Consumer spending remained resilient, the labour market stayed strong, and corporate earnings held up despite ongoing cost pressures and trade uncertainty.
After several years of aggressive interest rate increases aimed at controlling inflation, the U.S. Federal Reserve adopted a more measured approach. While policymakers remained cautious, the direction of policy shifted away from highly restrictive settings.
Technology and growth-oriented companies led U.S. equity markets, particularly those tied to artificial intelligence (AI). As the year progressed, however, valuation concerns and shifting expectations led to periods of volatility and pullbacks in some of these areas. This served as a reminder heading into 2026 that market leadership can change quickly, underscoring the importance of maintaining a balanced exposure across geography and sectors, staying focused on long-term positioning.
International Markets
Global markets in 2025 were shaped by a mix of economic adjustment and geopolitical tension. While inflation pressures eased in many regions and central banks moved cautiously toward more neutral policy settings, global growth remained uneven as countries navigated shifting trade relationships, energy markets, and political uncertainty.
Trade tensions and technology-related restrictions between major global economies contributed to periodic volatility and reinforced a trend toward more fragmented supply chains. At the same time, ongoing instability in parts of the world continued to influence energy markets, leading to short-term swings in commodity prices.
For Canadian investors, maintaining balance across different regions and markets can help manage the ups and downs that may occur in any single geographic area. This approach can support more consistent outcomes over time, particularly in an increasingly interconnected and unpredictable global environment.
Looking ahead
Looking into 2026, the investment environment appears more stable than in recent years, though not without challenges. Interest rates are closer to more normal levels, inflation pressures have moderated, and economic conditions have become more predictable. While geopolitical and trade-related risks remain part of the landscape, markets have shown an ability to adjust over time.
For investors, the core principles remain unchanged. Staying focused on long-term goals, maintaining diversification across asset classes and regions, and collaborating with a trusted financial professional continue to be effective ways to navigate uncertainty and position portfolios for the years ahead.
As we move deeper into 2026 and as you review your quarterly statements, we encourage you to reach out to your financial advisor to ensure your portfolio remains well positioned for whatever the year may bring. We wish you a year ahead filled with health, stability, and continued progress towards your financial goals.
Sources:
“Projections.” Bankofcanada.ca, 2025, www.bankofcanada.ca/publications/mpr/mpr-2025-10-29/projections/.
Frances Donald, et al. “Quarterly Canadian Outlook: More Cautious Optimism amid Structural Shifts.” RBC Economics, 15 Dec. 2025, www.rbc.com/en/economics/canadian-analysis/featured-analysis/quarterly-canadian-outlook/quarterly-canadian-outlook-more-cautious-optimism-amid-structural-shifts/. Accessed 17 Dec. 2025.
Dolan, Mike. “AI Masking the Economy Cuts Both Ways.” Reuters, 10 Dec. 2025, www.reuters.com/technology/artificial-intelligence/ai-masking-economy-cuts-both-ways-2025-12-10/.
“Coming Soon: World Economic Outlook, October 2025.” IMF, 14 Oct. 2025, www.imf.org/en/Publications/WEO/Issues/2025/10/14/world-economic-outlook-october-2025.
Lee, Liz, and Shi Bu. “Trump’s Trade War with China in 2025.” Reuters, 14 Oct. 2025, www.reuters.com/world/china/trumps-trade-war-with-china-2025-2025-10-13/.
