1) INTRODUCTION:
François Doyon La Rochelle:
You’re listening to Capital Topics, episode #83!
This is a monthly podcast about passive asset management and financial and tax planning ideas for the long-term investor.
Your hosts for this podcast are James Parkyn and me François Doyon La Rochelle, both portfolio In today’s episode, we break down the key stock market statistics from 2025 and we unpack the biggest lessons the year taught investors.
investment plan.
Enjoy!
2) 2025 CAPITAL MARKETS REVIEW: A BANNER YEAR FOR INVESTING LESSONS:
François Doyon La Rochelle:
Before we start, since this is our first podcast of the year, I would like to wish our audience a happy, healthy, and prosperous year in 2026.
James Parkyn:
Yes indeed, François. Our best wishes for 2026 go out to all our listeners and their families, wishing them all the best of health and happiness.
François Doyon La Rochelle:
Now, as we usually do in the first episode of the year, we will look at what happened in the markets and the economy in 2025, a year that frankly defied expectations at almost every turn. If we had told our listeners at the start of the year that we would see sweeping tariffs, a record‑long U.S. government shutdown, sticky inflation, geopolitical turmoil, and a constant tug‑of‑war between optimism and fear, I think that our listeners would have predicted a very rough year for the stock markets.
James Parkyn:
Indeed Francois. I published a blog in December titled Our Best Advice of 2025. This blog summarizes the key lessons that our listeners can take away for the year. Number one was ignore the pundits and their forecasts. The narrative heading into 2025 was dominated by caution. Analysts were warning about stretched valuations, slowing growth, and the possibility that the AI boom had peaked. And yet, when the dust settled, markets delivered another year of strong returns, a third straight year of double‑digit gains for the US and Canadian stock markets. Results that very few investors saw coming and that proved that, once again, staying the course was the right thing to do.
François Doyon La Rochelle:
Totally, James, and even more surprising was the story here in Canada. Despite all the doom‑and‑gloom headlines surrounding the tariffs and the constant anxiety about how they might hit our economy, the TSX Index quietly delivered one of the strongest performances in the world. It was a reminder, once again, that the markets and the headlines often tell very different stories.
James Parkyn:
Well said, Francois. So today, as mentioned earlier, we will look at what exactly happened in the global markets and the economy. Most of the performance data points we will be referring to can be found on our market statistics page, a document available on our Capital Topics website in the resources section, or directly on our team’s page on the PWL Capital website. We believe this market statistics page is an essential tool for our listeners to review and assess the performance of their own portfolios.
François Doyon La Rochelle:
Now, before we discuss the performance figures for last year, let’s look at what happened on the economic front.
James Parkyn:
François, when you look back at 2025, we can say that the economy kind of muddled along, cooling somewhat but not collapsing. Inflation kept drifting lower in both Canada and the U.S., but it did so at different speeds. In Canada, inflation continued to drift lower throughout the year, but it did so in a very uneven way. By the end of the year, it stood at 2.2%. This level of inflation, which is close to the Bank of Canada 2% target. This gave the Bank of Canada enough confidence to start cutting rates earlier and more aggressively than the U.S. Fed. During the year, the Bank of Canada cut the overnight rate 4 times from 3.25% to 2.25%.
François Doyon La Rochelle:
Exactly. The U.S. got there more slowly, and the inflation remained sticky, so the Federal Reserve took a more cautious approach. They still cut rates three times from 4.5% to 3.75%, but they made it clear they weren’t declaring victory since the inflation rate remains above target at 2.7%. And of course, all of this played out against the backdrop of President Trump publicly pressuring the Fed to cut faster. Chairman Jerome Powell, however, held his ground, insisting decisions were based on data, not politics.
James Parkyn:
Now, let’s take a quick look at the European economy. Euro area inflation fell much more sharply, and it currently stands at the European Central Bank’s 2% target. This was due to weaker growth. The European Central Bank had more incentive to lower Interest rates faster. They cut rates 4 times from 3.15% to 2.15%.
François Doyon La Rochelle:
Correct, on the labour market front, in Canada, unemployment drifted higher during the year to finish at 6.8%. In the U.S., the labour market saw a similar cooling with unemployment finishing the year at 4.4%, which is still healthy historically.
James Parkyn:
Now, to tie it all together, François, looking at GDP growth, the U.S. economy surprised almost everyone with several strong quarters. The last quarter showed a healthy growth rate of 4.3% annualized. In Canada, the growth rate was more modest, but we avoided a recession. GDP contracted in the second quarter but rose again in the third quarter at an annualized pace of 2.6%.
François Doyon La Rochelle:
So, in summary, 2025 wasn’t a boom year or a bust year. Inflation cooled, central banks eased, labour markets softened but held, and GDP growth continues, but at different rates.
James Parkyn:
That’s correct, François. Now that being said, let’s now look at the performance of the bond market.
François Doyon La Rochelle:
Well, the Canadian short‑term bonds index finished the year up 3.9%, benefiting from falling yields and the Bank of Canada’s rate cuts. As for the broader universe bond index, which holds longer-dated bonds, the picture was positive as well, though a bit more muted, as it returned 2.6% for the year.
James Parkyn:
That’s right, François. Bonds didn’t steal the spotlight in 2025, but they quietly did their job. They provided stability and generated income.
François Doyon La Rochelle:
Indeed, James, and that’s their main role in a portfolio.
James Parkyn:
Ok, Francois, let’s now look at what happened in the stock markets.
François Doyon La Rochelle:
James, without going into the specific details of what happened during the year, let’s just remind ourselves of how 2025 was just filled with noise, fear, and uncertainty. Every month seemed to bring a new reason to worry.
James Parkyn:
Exactly François. We had wild swings between risk‑on and risk‑off sentiment. Investors debated whether AI was a bubble, whether tariffs would derail the world economy, whether inflation would perk up, and whether the labour markets would crack. But yet, through all of that, the recession everyone predicted never materialized.
François Doyon La Rochelle:
And that’s the key point, James. Through all the ups and downs, investors who stayed the course prospered. Those who tried to time the market, who jumped out during the April selloff, or who hesitated because valuations looked high, missed the strongest parts of the rally. It’s a reminder that markets climb a wall of worry. Headlines scream, emotions run high, but long‑term discipline wins.
James Parkyn:
Well, François, like I said in my blog, Best Advice of 2025, last year was a masterclass in how emotions can mislead investors. I recommend our listeners go back and review our last podcast #82 on behavioral biases and how they impact portfolios.
François Doyon La Rochelle:
Let’s now look at the performance of Canadian equities. In late 2024, many investors wanted to go all‑in on the U.S. market. And you could understand why the U.S. markets had dominated for a decade. They had outperformed Canadian equities by more than 6% annually for the last 10 years. In addition to that, with the prospect of tariffs hitting the Canadian economy, there were discussions and fears of capital flight, job losses, and a productivity crisis. The prospect for Canadian equities was not bright. But Canada shocked everyone. As of December 31, the S&PTSX Composite Index was up 31.7%. It almost tripled the Canadian‑dollar return of the U.S. total market index.
James Parkyn:
And Francois what about Canadian small‑cap stocks, they returned a whopping 50.3% last year. That’s not an error. That’s the actual return. And it reinforces something we’ve said for years: returns often come in short, unpredictable bursts. If you weren’t invested, if you were waiting for the “right moment,” you missed it. And missing a year like that is incredibly hard to recover from.
François Doyon La Rochelle:
Exactly. And this is why diversification isn’t dead. It’s alive and well. Not only did small cap stocks do well, but so did large and mid-cap value stocks with a performance of 35.8%. You remember the difference in performance between U.S. and Canadian equities for the last 10 years I mentioned earlier. Well, it was 6% annually as of the end of 2024, with this strong performance from Canadian equities, the gap between the two was only 1.5% annually at the end of 2025.
James Parkyn:
That’s an incredible turnaround, Francois. The 10-year performance for the Canadian Equity is 12.7%, and it’s 14.2% for the U.S. Equity. And this is impressive when you consider that U.S stocks markets' return over the past 10 years included the return of the Magnificent 7 stocks. So, Francois, can you explain why Canadian equities performed so well?
François Doyon La Rochelle:
Well, James, the three main sectors of the S&PTSX Index, which are the financials, basic materials, and energy, performed well last year, and together they represent roughly 66% of the index. But out of these three sectors, the one that stood out was Basic Materials with a performance of 100.6%. That sector, which represents close to 19% of the index, benefited from the rush into gold and other metals by nervous investors looking for a safe haven due to uncertainty in the global economy. The impact was even greater in the small-cap sector, as that sector climbed 137.6% in the year.
James Parkyn:
Well, Francois, after so many years of Canadian stocks underperforming the U.S, this again goes to show the importance of diversification and sticking to your plan. Patience pays off. So, Francois, what’s your take on gold’s performance in 2025, and let’s also talk about Bitcoin Cryptocurrency.
François Doyon La Rochelle:
Well, James Gold had a very good year in 2025; it was up roughly 65%, and it reached a record high per ounce, driven mainly by geopolitical uncertainty, a weakening U.S. dollar, and other factors. As for Bitcoin, it struggled somewhat. It lost 6.3% in USD for the year, closing at US $87,506 after peaking above US $120,000 in July. Their performance, and especially for Gold this year, does not change our view: they are speculative assets, not investments. Buffett said it once. I could not find the exact quote, but essentially, he said that Gold and Bitcoin don’t produce cash flows. They don’t innovate. They don’t generate earnings. Their price depends entirely on what someone else is willing to pay.
James Parkyn:
Exactly right, Francois. On paper It is easy to believe that you can make money from gold and Cryptocurrency. But there is no real way to value them because they don’t generate cash flows; we feel that they are speculative investments and don’t make sense for most investors’ long-term portfolios.
François Doyon La Rochelle:
Exactly. Productive assets build wealth. Speculative assets build headlines.
James Parkyn:
Now what about the U.S. equites Francois?
François Doyon La Rochelle:
Well, James, although the U.S. equities lagged Canadian equities and as you will see later, international developed and emerging markets equities. However, they still had a very decent performance since the U.S. total market index increased 11.9% in Canadian dollars. In U.S. dollars, that performance was even stronger at 17.2%. The difference in return is due to the U.S. dollar depreciating versus the Canadian dollar during the year. Unlike in Canada, small cap and value stocks continue to trail their counterparts with performances of 7.7% and 10.7%, respectively, also in Canadian dollars.
James Parkyn:
Am I right to say, Francois, that for the third consecutive year, technology and communication‑services stocks were the primary drivers of returns in the U.S market?
François Doyon La Rochelle:
You are right, the artificial intelligence boom didn’t slow down, and if anything, it accelerated. Companies poured billions into AI infrastructure, cloud computing, and automation. About 7 percentage points, or roughly 40% out of the 17.9% return of the S&P500 index, came from the tech stocks. And another 3.1 percentage points, or 18%, came from communication services. So nearly 60% of the market’s gains came from just two sectors. And when you zoom in even further, it gets even more concentrated. NVIDIA and Alphabet alone with their strong performances of 38.9% and 65.2% respectively, contributed more than 2 percentage points each to the performance of the index. Combined, they accounted for more than a quarter of the market’s total gains.
James Parkyn:
That’s incredible. NVIDIA is now a $4.7 trillion dollar market cap company, and Alphabet/Google, close behind, comes to around $3.9 trillion dollar. Some of these MAG 7 stocks are worth more than the whole stock market of some developed countries. For example, they are both larger than the UK stock market.
François Doyon La Rochelle:
Now, to be fair, market breadth did broaden a bit in 2025. All the sectors of the S&P500 Index and 64% of its constituents had positive returns last year.
James Parkyn:
Yes, but at the same time, François, we can’t ignore the fact that the mega‑cap stocks still carried an outsized share of the load. Even with broader participation from other sectors and companies, the Magnificent 7, which still represents about a 1/3 of the S&P500, remained the gravitational center of the market with an average performance of 21.9%. Their earnings power, their scale, their dominance in AI kept them in the driver’s seat. To be more accurate, Francois, we should say that the Magnificent 7 became the Magnificent 2. Only two members, NVIDIA and Alphabet, exceeded the S&P500 benchmark. As you stated earlier, Francois, NVIDIA was up 38.9%, and Alphabet was up 65.2%, all in U.S dollars.
François Doyon La Rochelle:
Yes, and investors need to be aware of this concentration. On one hand, having exposure to the winners has helped generate a significant outperformance by U.S equities over the long term. But on the other hand, you don’t want your entire portfolio tied to a handful of companies. It’s a balancing act and one that requires discipline.
James Parkyn:
You are right, François, and a great example of that was the Danish stock market, which was down -11.7% in 2025. This stock market was massively overweight in one stock, NOVO NORDISK, maker of the weight loss drug Wegovy, which dropped significantly. We should remind our listeners that concentration alone isn’t a crash signal. Many countries have even more concentrated markets and still deliver strong returns. Historically, the relationship between concentration and future returns is said to be statistically insignificant.
François Doyon La Rochelle:
Valuations, however, are different. High valuations can mean lower expected returns. The Magnificent 7 currently have an average price-earnings ratio (PE ratio) of 68. This is way above the long-term average of 20 for the S&P500 Index. This said, the other 493 stocks in the S&P500 Index have a PE of 28, which is nowhere near that of the Magnificent 7.
James Parkyn:
But as a reminder to our listeners, valuations don’t predict the future. High valuations can be followed by high returns; the U.S. stock market has proven that repeatedly. So, valuations don’t help you time the markets.
François Doyon La Rochelle:
James, before we move on to international equities, we can’t forget the tariff drama. When the U.S. announced sweeping tariffs in April, markets tanked. It was one of the sharpest selloffs we’ve seen in years.
James Parkyn:
Francois, if you had told me on April 3 that the U.S. stock market would finish the year with double‑digit gains, I would not have believed you. The U.S. market was flirting with bear‑market territory, it was down more than 19% from its peak. Investors were panicking. Headlines were brutal. And then, almost overnight, the narrative flipped.
François Doyon La Rochelle:
Well, James, yes, when President Trump paused tariffs, markets exploded higher. April 9th became the biggest one‑day gain in 17 years. If you bailed out on April 3, you missed one of the most powerful rallies of the entire year; the S&P500 rose 9.3% on that day alone.
James Parkyn:
And that’s why timing the market is so dangerous. The biggest up days often cluster right after the biggest down days. Also, no one could have predicted that President Trump would’ve put 90 days pause on the tariffs.
François Doyon La Rochelle:
Correct, now let’s look at internationally developed and emerging markets. Surprisingly, as for Canadian equities, the U.S. tariffs did not negatively impact performance for international equities. International large and mid-cap stocks had a performance of 25.3% in Canadian dollars last year and in domestic currency, a solid 20.6%. Small-cap and value stocks also did well, retuning 25.9% and 35.8% respectively. As for emerging countries, large and mid-cap stocks fared even better, returning 28.3% in Canadian dollars. If we look at country-specific performances, it is interesting to note that countries explicitly targeted by the U.S. tariffs, like Mexico and China, performed well last year with returns of 48.2% and 25.5%, respectively.
James Parkyn:
That’s an interesting point you raise, Francois, and it reinforces our view that investors need to stay diversified, stay disciplined, and stay invested. This said, before we wrap up, let’s talk about uncertainty because it never goes away.
François Doyon La Rochelle:
You are right, James; uncertainty was plentiful in 2025, but now, as we enter the new year, it’s no different. Look at the situations in Venezuela and Iran, global political tensions in the Middle East and Ukraine, protests in the U.S, and continuing economic instability around Trump’s tariffs. It’s a reminder that geopolitical risk is always part of the landscape. And events like that are unpredictable. They’re sudden, and they push us to react emotionally.
James Parkyn:
Yes, but markets have always lived with uncertainty. Always. There has never been a year when everything was calm and predictable.
François Doyon La Rochelle:
And yet, James, markets adapt. They move forward. Uncertainty isn’t a bug; it’s the system, and it’s the price of admission for higher long‑term returns.
James Parkyn:
Again, 2025 was a reminder that markets don’t move in straight lines, and they don’t follow the headlines.
François Doyon La Rochelle:
Exactly, staying invested, staying diversified, and staying disciplined to your long-term goals paid off again. It may sound as if we are repeating ourselves, but as our good friend Jason Zweig from the Wall Street Journal once said, and I quote, “That’s because good advice rarely changes, while markets change constantly. The temptation to pander is almost irresistible. And while people need good advice, what they want is advice that sounds good.”
James Parkyn:
Well said, Francois, that’s a great quote. I wish I could write like that. So, to conclude, the story of 2025 in a nutshell: uncertainty everywhere, resilience everywhere, and markets that rewarded patience over prediction.
3) CONCLUSION
François Doyon La Rochelle:
Thank you, James Parkyn for sharing your thoughts and expertise again today.
James Parkyn:
You are welcome, François.
François Doyon La Rochelle:
So, that’s it for episode #83 of Capital Topics!
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