Canadian and US markets post major gains as Middlefield monitors trade tensions, real estate trends, and AI shifts
Middlefield’s February 2025 Market Commentary highlighted significant gains in equity markets during 2024, setting a strong foundation for continued growth in 2025.
The S&P 500 and TSX Composite posted total returns of 25 percent and 22 percent, respectively. This performance was broad-based, with 10 out of 11 S&P 500 sectors reporting positive returns.
The US market, having returned over 50 percent over the past two years, recorded its best biennium since 1997–1998.
Equity markets remained resilient in January despite headlines from the Trump Administration and the AI industry.
The S&P 500, TSX Composite, and MSCI World Index saw returns of 2.8 percent, 3.5 percent, and 3.6 percent, respectively.
On January 30, President Donald Trump announced 25 percent tariffs on imports from Canada and Mexico, delaying implementation by 30 days shortly thereafter.
Middlefield noted that tariffs on the United States’ top trading partners could negatively impact consumers and are primarily being used as a negotiating tool.
The risk of tariffs remains a key issue to monitor in the coming months, though Trump’s recent statements suggest a clearer path toward resolution.
Canada’s $1.3bn border plan, involving 10,000 border personnel, drone and helicopter investments, and a Fentanyl Czar appointment, appeared to ease Trump’s concerns about border security.
Unlike the border issue, which can be resolved relatively quickly, the USMCA renegotiations present a larger challenge. While the trade pact is due for review by July 1, 2026, Trump has indicated a desire to accelerate discussions.
Middlefield suggested that having an elected Prime Minister would be crucial for substantive negotiations and believes a Canadian federal election is likely in Q2 of 2025.
The US-Canada tariff dispute has led Canadian businesses to diversify trade relationships beyond North America. Canada finalized a free trade agreement with Ecuador, its 16th deal under an eight-year trade diversification strategy, and is currently negotiating with ASEAN’s 10-member bloc.
Middlefield expects continued efforts to streamline regulations and reduce interprovincial trade barriers, positioning select companies to benefit from these initiatives.
The US economy has transitioned from a post-pandemic rebound to sustainable growth, supported by stable employment, business investment, and consumer spending. Corporate cost restructuring and AI-driven efficiencies have sustained earnings growth despite a moderating labour market.
While geopolitical tensions persist, Middlefield sees a favourable outlook for equities.
The Canadian real estate sector posted a total return of 0.4 percent in January. Despite positive performance, REITs underperformed the TSX by 3 percent and continue to trade at historically low valuations.
Tariff concerns have overshadowed strong fundamentals, which include 5–6 percent AFFO/share growth projections over the next two years. Canadian REITs, with potential for earnings growth and multiple expansion, are positioned to outperform once macro risks subside.
US REITs performed better, with a 4.1 percent total return in January, surpassing the S&P 500’s 2.8 percent return. Prologis, the world’s largest REIT, contributed significantly to this performance with a 12.9 percent return.
The company’s earnings call indicated a bullish outlook for the US industrial real estate market, with net absorption projected to rise 20 percent in 2025 while new supply deliveries decline by 35 percent.
Prologis signed over 60 million square feet of leases during the quarter, setting a record, and saw a 17 percent increase in its leasing pipeline.
Portfolio upgrades during market downturns have provided advantages in real estate.
Primaris and Chartwell were active in January, acquiring newer properties and divesting older assets.
Primaris announced acquisitions of a 50 percent stake in Southgate Centre, Edmonton, and full ownership of Oshawa Centre for $585m, alongside non-core asset sales in Guelph and Sherwood Park for $139m.
Chartwell acquired Les Quartiers in Montreal for $136m, a fully occupied property with strong rent growth potential.
Middlefield viewed these transactions favourably, citing cost-of-capital advantages and long-term growth potential.
Middlefield also noted a disconnect between REIT fundamentals and trading prices, with the sector trading at a 25 percent discount to NAV.
Tariff concerns and lower immigration projections are priced into Canadian REITs, but potential M&A activity, falling government bond yields, or positive tariff developments could drive a significant re-rating.
Increased foreign investor interest in Canadian REITs is also expected to provide upward support.
The healthcare sector outperformed in January, with the S&P 500 healthcare index returning 6.8 percent. Following two years of underperformance, healthcare valuations remain at a discount despite leading EPS growth.
Middlefield sees significant upside potential in the sector, with M&A expected to be a key driver.
Early 2025 has already seen major deals, including Johnson & Johnson’s $14.6bn acquisition of Intra-Cellular, Stryker’s $4.9bn purchase of Inari, Eli Lilly’s $2.5bn acquisition of Scorpion Therapeutics, and GSK’s acquisition of IDRx Inc. for up to $1.15bn.
The sector’s M&A resurgence is likely to boost investor sentiment and valuations.
Artificial intelligence is also shaping the life sciences sector. The Stargate joint venture plans to invest up to $500bn in data centres over the next four years, supporting AI-driven healthcare advancements.
AI is already improving radiology and diagnostics, with potential in drug discovery and treatment development. Middlefield sees strong long-term opportunities in AI-linked healthcare firms.
Canadian pipeline operators Enbridge, TC Energy, and Pembina remain insulated from potential oil and gas tariffs due to long-term contracts that ensure stable revenues. Enbridge and TC Energy have focused on debt reduction, infrastructure expansion, and shareholder returns.
While the US remains Canada’s largest energy market, the TMX Pipeline and LNG Canada project are expanding access to global markets, particularly in Asia and Europe.
Gold prices closed above US$2,800/oz in January, marking an all-time high. Ongoing policy uncertainty and the threat of tariffs could continue to drive gold demand. China’s efforts to diversify foreign exchange reserves may further support gold prices.
Despite an 80 percent increase in gold prices since 2011, gold equities have underperformed, with the GDX ETF down 44 percent and the GDXJ junior gold miners index down 73 percent.
However, Middlefield maintains a positive view on precious metals producers, anticipating margin expansion and valuation growth. The S&P/TSX gold index returned 16 percent in January, while gold prices increased by 6.8 percent.
Middlefield also observed that the natural gas market is improving, with LNG exports supporting higher demand. European gas prices recently hit a one-year high due to cold weather, supply concerns, and capacity restrictions in Norway.
The Trump Administration’s deregulatory stance is expected to benefit the sector.
AI stocks experienced volatility in January. The announcement of the US$500bn Stargate Project initially drove AI stocks higher, but concerns over DeepSeek’s R1 AI model weighed on sentiment. NVIDIA saw a record US$600bn market cap loss in a single day.
Middlefield viewed the selloff as an overreaction, emphasizing strong earnings from Microsoft, Meta, and Alphabet, which signalled increased AI investment.
The firm remains confident in AI-related investments across semiconductors, software, and hardware. AI-driven cost efficiencies are expected to expand adoption among small and medium-sized businesses.
Meanwhile, demand for computing power continues to rise, supported by new AI applications and always-on agentic software, which could drive significant long-term compute needs.
Middlefield also reiterated the importance of cybersecurity stocks, given the growing risks associated with autonomous AI operations.
