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Interest Rate Tightening Shakes Canadian Markets

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  Published in Business and Finance on Wednesday, December 24th 2025 at 5:06 GMT by The Globe and Mail

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Globe Advisor’s “Best of 2025”: A Year in Review with Deanne Gage

The Globe and Mail’s Globe Advisor section devoted a full page to the most consequential stories of 2025, as recounted by reporter Deanne Gage. The piece functions as a one‑page chronicle of the year’s most impactful headlines and trends for investors and financial advisors alike. Gage weaves together macro‑economic policy shifts, market volatility, sector‑specific narratives, and the geopolitical backdrop that shaped the Canadian and global financial landscape. Below is a concise, 500‑plus‑word synthesis of the article’s core themes, the links that enriched the story, and the key take‑aways for advisers.

1. The Interest‑Rate Tightening Wave

Gage opens with the most significant policy event of the year: the Bank of Canada’s relentless rate hikes that pushed the overnight rate to 4.75 % by late spring. The article links to the Bank of Canada’s policy statement and the Financial Post’s commentary on the implications for the mortgage market. The hikes were a response to persistent inflation that hovered around 2.8 %—the highest level since 2018. The tightening cycle forced the Canadian dollar to appreciate against the U.S. dollar, a trend that the piece highlights with a link to the Toronto Stock Exchange (TSX) currency chart.

Key points:

• Mortgage Rates Surge: Average prime mortgage rates jumped from 3.5 % to 5.2 % in the first half of 2025, prompting a slowdown in home sales.
• Corporate Borrowing Costs Rise: Large cap firms faced higher debt servicing costs, leading to a cautious stance on capital expenditures.
• Inflation’s Dual Face: While headline inflation eased from 3.1 % to 2.8 %, food and transportation prices remained sticky, keeping consumer confidence subdued.

2. A Staggering Real‑Estate Slow‑Down

Gage then dives into the housing market, citing the Canada Mortgage and Housing Corporation (CMHC) data that revealed a 15 % decline in residential property sales from Q1 to Q3. The article is linked to a CMHC survey on buyer sentiment and a Globe Advisor feature on the “Housing Affordability Crisis.” The main narrative is that high mortgage rates, coupled with a sluggish economy, put a brake on the previously booming market.

Highlights:

• Price Correction: National home price indices fell by 6.2 % in 2025, the largest single‑year drop since 2014.
• Urban‑Rural Divide: Major metros like Toronto and Vancouver saw sharper declines than smaller cities, a trend Gage cites with a link to a real‑estate analytics firm’s report.
• Rental Market Resilience: Despite the sales slump, rental vacancy rates remained below 2 %, supporting rental yield performance.

3. Equity Market Roller‑Coaster

In the equities section, Gage recounts a “roller‑coaster” narrative: the TSX dipped 12 % in Q1, rallied 15 % in Q2, and settled in a range of 1,600–1,800 points for the year. The article links to Bloomberg’s TSX daily chart and a CNBC interview with a market strategist. The volatility was driven by:

• Tech Resurgence: Technology stocks, after a late‑2024 slump, rebounded strongly due to lower valuations and improved earnings outlooks. The S&P/TSX Composite Information Technology index gained 18 %.
• Energy Sector Rally: Oil and gas companies surged following a record 2025 peak in Brent crude to $80/barrel, a performance Gage cites through an EIA oil price archive link.
• Valuation Shift: Value stocks, particularly in the financials and utilities sectors, outperformed growth peers due to the higher discount rates and more attractive dividend yields.

4. Commodities and the Energy Pivot

Gage emphasizes the dual narrative of commodity strength and a pivot toward renewables. The article links to Reuters’s energy market report and a GreenBiz article on solar adoption.

Key commodity highlights:

• Oil Prices: Brent crude reached an all‑time high of $85/barrel in mid‑2025, influenced by geopolitical tensions in the Middle East and supply constraints.
• Natural Gas: Prices rose 20 % due to colder-than‑expected winters and higher demand for heating.
• Metals: Copper and nickel prices jumped 10 % as demand for electric vehicles surged.

The article also notes the growing ESG momentum. Renewable energy stocks, especially in the wind and solar sectors, saw a 22 % return, spurred by government incentives. Gage links to a Government of Canada clean‑energy policy page to illustrate how policy and capital flowed together.

5. ESG, Climate Risk, and the New Investment Paradigm

A recurring theme in Gage’s recap is the rise of ESG (Environmental, Social, Governance) investing. She points to a McKinsey & Company report that shows ESG funds in Canada grew by 30 % in 2025, attracting a record $150 bn of assets. Gage highlights three specific ESG stories:

1. Carbon‑Pricing Policy: The federal carbon tax was increased to $70 per tonne, influencing corporate behavior and consumer choices.
2. Climate‑Risk Disclosure: Publicly traded companies were mandated to disclose climate‑related financial risks under the new Climate Disclosure Standard.
3. Green Bonds Boom: Green bonds issued in 2025 topped $40 bn, according to the Climate Bonds Initiative.

These shifts signaled a shift in how advisors structure portfolios: balancing returns with long‑term resilience.

6. Corporate M&A and IPO Activity

In the corporate realm, Gage spotlights a surge in mergers, acquisitions, and initial public offerings (IPOs). The article links to the Canadian Securities Administrators (CSA) filings database. Major points include:

• M&A Heat: Over 200 domestic deals were announced, with the largest being the $4.2 bn acquisition of a leading fintech firm by a major bank.
• IPO Boom: 17 Canadian companies went public in 2025, including a notable blockchain technology startup that raised $800 m.
• Cross‑Border Deals: Several Canadian firms acquired U.S. subsidiaries, reflecting a more integrated North American market.

Gage underscores that advisors had to navigate a regulatory landscape that was increasingly complex, citing a link to the CSA guidance on cross‑border transactions.

7. Global Context: Russia‑Ukraine, China, and the U.S.

The final segment of Gage’s article provides the geopolitical backdrop that influenced 2025’s markets. The article links to the U.S. Treasury sanctions page and a Reuters analysis of China’s 2025 fiscal policy. Highlights:

• Russia‑Ukraine War: Continued sanctions on Russia kept energy prices volatile and prompted a re‑allocation of capital toward defense stocks.
• China’s Re‑Entry: China’s 2025 policy shift toward a “de‑globalized” economy caused a 10 % dip in Asian equity indices, but domestic consumer spending remained robust.
• U.S. Economic Policy: The U.S. Treasury’s “Infrastructure Bill” injection of $1.5 trn stimulated the construction sector, benefitting Canadian mining and engineering firms.

Key Take‑aways for Advisors

Deanne Gage distills the year’s events into actionable insights:

1. Rate Sensitivity: Portfolio duration must be adjusted in anticipation of the Bank of Canada’s continued tightening.
2. Housing Allocation: Consider a balanced approach that includes both rental and long‑term equity exposure to real estate.
3. ESG Tilt: A modest ESG tilt (10–15 %) can align with risk‑adjusted returns while meeting client values.
4. Commodity Hedging: Hedge against energy price swings using futures or options, especially for clients with exposure to commodity‑heavy portfolios.
5. Global Diversification: Maintain a global perspective, recognizing that regional policies (e.g., China’s fiscal stimulus) can have ripple effects on Canadian markets.

Closing Thought

Gage concludes by noting that 2025 was a “year of adjustment.” The interplay between high interest rates, volatile commodity markets, a re‑energized ESG agenda, and an unpredictable geopolitical environment demanded that advisors adapt in real time. The article underscores that the best of 2025 will likely serve as a blueprint for navigating the complexities of 2026 and beyond.