Last year saw a recovery in the Canadian stock market in the second half as the Bank of Canada began interest rate cuts. The TSX Composite Index rallied 18% in 2024, with a 15% rally in the second half. Within seven months, the Bank of Canada slashed interest rates from 5% to 3%. Such steep rate cuts accelerated the rally of tech, real estate, and infrastructure stocks, sending them to their all-time or multi-year highs.
The 2024 success of the Canadian stock market isn’t over
The end of 2024 saw a pullback as the U.S. presidential election outcome created uncertainty around policies. However, that doesn’t mean the 2024 success story is over. There are still growth opportunities for the Canadian stock market in 2025.
Bombardier stock
Bombardier (TSX:BBD.B) stock rallied 92% in 2024 as the rising revenue and profits drove the stock price. The business jet maker improved its adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) margin to 15.7% in full-year 2024 from 15.3% in 2023. It achieved this by leveraging its existing platforms for defence aircraft and earning more returns with less investment.
However, Bombardier’s stock fell 25% in December and January amid uncertainty around Donald Trump’s policies. This dip is an opportunity to buy, as Bombardier’s secular growth is unaffected.
Bombardier will bring into service its flagship Global 8000 large cabin aircraft in 2025. However, it has deferred its 2025 guidance until there is clarity on Trump’s tariffs and Canada’s retaliatory tariffs. Once the uncertainty settles, the company will adjust its operations, and the stock could recover and continue its rally.
Enbridge stock
Enbridge (TSX:ENB) stock rallied 30.5% in 2024 to its nine-year high, with the rally picking up towards the end of June 2024 after the interest rate cut began. There isn’t more upside for Enbridge stock price as it is a range-bound stock. However, the success story is likely to continue on the dividend front. The decline in interest rates will help Enbridge increase its free cash flow, which will be distributed as dividends.
If you notice, Enbridge slowed its dividend growth from 9.8% in 2020 to 3% in 2021 and has retained that growth rate since then as it diverted cash to build gas pipelines. With several gas pipelines coming online, it aims to get a bigger pie of liquified natural gas exports to Europe.
U.S. president Donald Trump is looking to impose a 10% tariff on Canadian oil and gas imports. That could affect Enbridge’s earnings from toll money as transmitted volumes could fall. However, gas exports could open a new long-term growth opportunity, which could help Enbridge accelerate its dividend growth in the medium term.
Retail real estate
The retail real estate stocks also rallied after the interest rate cuts began. They have more upside potential as property prices normalize after a steep correction. Choice Properties REIT (TSX:CHP.UN) unit price surged 22% to over $15 between June and September 2024 on interest rate cuts. However, the unit price corrected by 11% to below $14 to match the net asset value of $14.07 as the unit price is a product of the value of its property portfolio.
The REIT is seeing an increase in cash flow as it buys and sells properties, develops new income-generating properties, and increases rent annually. It passes on this cash flow to unitholders as distributions. It increased its distributions by 1.3% annually in March over the last two years and could increase it again in March 2025. The unit price will grow gradually as property prices rise.
Investor takeaway
The year 2025 brings uncertainties of a trade war and the possibility of a mild recession. However, it also brings growth in sectors sensitive to interest rates.