A stablecoin for your thoughts

Stocking up

Douglas Porter, chief economist, BMO Economics

The Canadian equity market had one of its best years of this century in 2025, with a total return approaching 30 per cent, even as the headlines were filled with economic gloom for much of the year. This seeming conundrum was often explained away by the fact that the Toronto Stock Exchange is not very representative of Canada’s underlying economy, as the index is heavily weighted in mining, materials, energy and financials – a relatively small portion of gross domestic product.

Yet, despite that, the TSX actually has been a very good leading indicator in the past, as the chart suggests. While the fit is far from perfect, periods of strong returns in the TSX usually presage strong economic growth, which makes the robust 2025 equity market performance a tantalizing hint that the economy may exceed expectations in 2026. At the very least, we can say that it is almost unheard of to have the economy slump into a downturn when the stock market is forging steadily higher.

The great divergence

David Rosenberg, founder and president, Rosenberg Research

Call it the Great Dichotomy. The University of Michigan U.S. consumer sentiment index has declined to its second-lowest level in the 73-year history of the series and far below the lows posted in all recessions dating back to the early 1950s. Sentiment is at a record low for low-income households, and now this loss of confidence is bleeding into the middle class. High-end income earners are faring relatively better, but in absolute terms, we’re seeing erosion as well – even with bloated equity portfolios and stock market sentiment remaining at the high end of the historical range.

The fact that consumer sentiment is this far below the level prevailing in the aftermath of the tech wreck recession, 9/11 and even lower than it was after the Lehman Brothers collapse in September, 2008, is telling. And people ask why I am risk-averse!

The historical average, at the worst levels of all the recessions of the post-Second World War era, is 70. We are nearly 25 per cent below that mean. The average of all the data points is 85 – and today, the index is around 40 per cent below that level. So don’t call it a recession if you don’t want to. Call it a vibecession. Or even a “banana,” as then-U.S. president Gerald Ford did back in the mid-1970s.

Labour market views are the most negative on record, save for the 1980 recession (but very close). The 71 per cent who expect more unemployment exceed the 9 per cent who expect less joblessness in the coming year by a factor of nearly eight times. Again, something we’ve never seen before, absent a recession, and this ratio is more than double the worst month we endured in the 2022-2023 recession scare.

Amazingly, despite all the negative feelings about all aspects of the economy, 58 per cent of respondents are bullish on the equity market – the high end of the historical range and even higher than it was at the turn of the year, when confidence over the real economy was more than 40 per cent higher than it is today.

Then again, who needs a job or an income when we have the stock market to look after us, right?

Stabilizing force

Moez Kassam, co-founder and chief investment officer, Anson Funds

Stablecoins have exploded in popularity over the past five years. They are issued on many different blockchains (Ethereum, Tron, Solana, etc.), with their value pegged 1-to-1 with fiat currency, predominantly U.S. dollars.

Their growing popularity can be attributed to lightning-fast transaction speeds, cheap cost of execution and access to U.S.-dollar monetary stability around the world. Washington’s passing of the Genius Act in July, 2025, has further legitimized stablecoins, providing a regulatory framework for the asset class.

Tether, the leading stablecoin issuer, has quietly become a key player in financial markets as it purchases financial assets to back its stablecoin supply. Tether is now the 17th-largest owner of U.S. Treasury bonds in the world and was the seventh-largest purchaser of U.S. Treasuries in 2024.

The Bank of Canada has come out in favour of central bank digital currencies – stablecoins with a different name – and U.S. Treasury Secretary Scott Bessent has suggested that stablecoins will strengthen the U.S. dollar’s position as the world’s reserve currency. Traditional financial institutions such as Western Union have adopted stablecoins to facilitate cross-border remittances.

Stablecoins should continue to proliferate as they further encroach on traditional financial rails and as real-world assets are increasingly tokenized.

A stable run

Jimmy Jean, chief economist and strategist, Desjardins Group

In 2026, the federal government is set to introduce regulations for stablecoins, a type of cryptocurrency pegged to a fiat currency. The impact of stablecoins on Canada’s financial system will be manageable, in our view. We can’t rule out confidence runs on private issuers, but robust oversight and provisioning can mitigate these risks. We believe concerns about traditional banks being hollowed out are overstated. Even in the most aggressive growth scenario, the outstanding amount of stablecoins will reach a very low level compared to bank deposits. Some of the money invested in stablecoins will also come from other sources, such as money market funds. The impact on Canadian capital markets should therefore be modest.

Changing paces

Alexander MacDonald, portfolio manager, Focus Wealth Management

Investors have voted, and it’s clear that AI enthusiasm has created a wide gulf between the haves and have-nots in 2025.

This chart shows the difference in returns between each year’s best-performing and worst-performing stocks within the tech sector of the S&P/TSX Composite Index. This year’s difference of 292 per cent (as of the end of November) is the largest in over 20 years, with Celestica Inc. up 262 per cent and Descartes Systems Group Inc. down 30 per cent.

Whether investor enthusiasm for AI continues in 2026 is another matter. Some promises made by the technology’s biggest proponents are beginning to strain credulity. Take ChatGPT developer OpenAI: It has deals in place to build 16 gigawatts of data centres. To put that into perspective, all the nuclear power plants in Canada have a combined installed capacity of just under 14 GW. If physical or financial limits do end up causing the pace of AI’s development to slow, today’s have-not stocks may become tomorrow’s haves.

AI or bust

Peter Berezin, BCA Research

In the third quarter of 2025, U.S. investment in tech equipment and software climbed to 4.5 per cent of GDP, slightly surpassing the level reached at the peak of the dot-com bubble. Looking forward, the five hyperscalers – Amazon.com Inc., Google, Meta Platforms Inc., Microsoft Corp. and Oracle Corp. – plan to add around US$2-trillion of AI-related assets to their balance sheets by 2030.

Given that AI assets typically depreciate at a rate of around 20 per cent per year, this implies that the hyperscalers are facing a US$400-billion annual depreciation expense – more than their combined profits in 2025.

Call of the loonie

Jason Kirby, reporter, The Globe and Mail

At the start of 2025, there was near-universal agreement that the Canadian dollar would fall against the greenback, continuing the trend of 2024. Instead, the Canadian dollar experienced a steady reversal, with the loonie’s rise picking up speed toward the end of the year. With President Donald Trump’s trade and economic policies triggering a slowdown in employment and weakening consumer confidence, the U.S. Federal Reserve is expected to keep cutting interest rates in the first half of the year.

Up here, on the other hand, the Bank of Canada has hit pause and may even feel pressure to hike its benchmark lending rate, giving further flight to the loonie. A rising Canadian dollar in 2026 should help keep inflation in check by making imports cheaper, but would hit exporters who were counting on a weaker currency to make their goods and services more competitive in the U.S. and offset tariffs.

2026 in charts: The full series

The economy and investment, in 14 points

A guide to Year 2 of the Canada-U.S. trade war

What’s ahead for the job market and household spending

A housing-market horoscope for Canadians

Five charts to help follow fiscal and monetary policy

Seven policy points to remember as Carney presses Canada to build big

More market insights on the Decibel podcast