TORONTO, Nov 26 (Reuters) - Canada's main stock index is set to edge higher in 2025, helped by lower borrowing costs as well as a cheaper valuation than the U.S. market, but returns could slow after investors potentially front-loaded much of the positive news, a Reuters poll found.
Also clouding the outlook, forecasts were collected before U.S. President-elect Donald Trump vowed to impose a 25% tariff on imports from Canada.
The median prediction of 21 portfolio managers and strategists in the Nov. 15-25 poll was for the S&P/TSX Composite index (.GSPTSE), opens new tab to rise 4.5% to 26,550 next year, far eclipsing the 24,350 level expected in an August poll.
The index was then expected to reach 27,500 by mid-2026, a gain of 8.2% from Monday's close of 25,410.
"The positive market momentum heading into 2025 is underpinned by a resilient consumer, rising corporate profits, and a global rate-cutting cycle, conditions that will likely persist in the quarters ahead," said Angelo Kourkafas, a senior investment strategist at Edward Jones.
The Bank of Canada has cut its benchmark interest rate by 125 basis points since the start of an easing campaign in June. Investors expect further cuts, lowering the rate to 3% in 2025.
"We are positive on the prospects for the TSX into 2025," said Philip Petursson, chief investment strategist at IG Wealth Management, adding valuations in Canada are more compelling than for the S&P 500 and the Canadian market could particularly benefit from a steepening yield curve.
The 12-month forward price-earnings ratio for the Toronto market, at 16.7, is much less than the roughly 24 multiple for the S&P 500, LSEG data showed.
That's due in part to the TSX's lower concentration of high-flying technology shares, with much of the index's capitalization in resource and financial shares.
Financials account for 31% of the TSX's weighting. A steeper yield curve tends to increase bank profit margins.
The TSX has climbed 21.2% since the start of the year. On Friday, it touched an all-time closing high of 25,444.28 as the prospect of lower taxes and looser business regulations under the Trump administration offsets the trade-tariff threat.
Still, six of eight analysts that answered a separate question said a correction of 10% or more is likely or highly likely early next year. One said unlikely and one said highly unlikely.
"The market has front-run a lot of the good news, which is why we expect volatility to pick up and returns to slow," Kourkafas said.
"Given our view that the expansion and bull market will continue, we would recommend investors view any pullbacks opportunistically."
(Other stories from the Reuters Q4 global stock markets poll package)
Reporting by Fergal Smith. Additional polling by Jaiganesh Mahesh and Rahul Trivedi. Editing by Mark Potter
