A bullish backdrop is expected to unfold for small-cap stocks.
Canadian economic growth is expected to improve as we progress through the year. In the Bank of Canada’s Monetary Policy Report (MPR) released in October, economic growth of 2 per cent was estimated for the first half of 2025, rising to approximately 2.5 per cent in the second half .
Meanwhile, interest rates are expected to continue to fall. Currently, the market is pricing in a 56-per-cent probability of a 25-basis point cut announced by the Bank of Canada on Jan. 29, according to data from LSEG. That day, the Bank of Canada will release an updated MPR.
Generally, falling interest rates combined with improving economic growth are positive for small-cap stocks. However, growing economic uncertainties and surging bond yields may thwart a small-cap rally. Investors may shy away from small-cap stocks, and instead opt to invest in large-cap stocks with strong earnings growth profiles and solid balance sheets.
In 2024, the S&P/TSX SmallCap Index trailed the S&P/TSX Composite Index, rising 15.97 per cent compared to a 17.99-per-cent price return for the broader TSX Index.
This report includes a link to a list of analysts’ target prices, recommendations, forecast returns and yields for all 240 securities in the S&P/TSX SmallCap Index grouped by sector and ranked according to their expected price returns (excluding dividend and distribution income). The posted target price for each security is an average of all available target prices from analysts. A target price typically reflects an expected share or unit price 12 months from now based on an analyst’s financial modelling, such as a discounted cash flow or sum-of-the-parts model. For the yield provided, Bloomberg calculates this figure by annualizing the most recent announced dividend or distribution value.
It’s important to note that high target prices, which imply stellar returns that seem unbelievable may be just that - unrealistic. At times, when a stock price falls analysts may maintain their bullish expectations, inflating the forecast return. In addition, an outlier (extreme target price) can skew the average target price, to the upside or downside, particularly when the number of analysts covering a stock is low. Don’t let a huge projected gain lure you into a position – it is critical to look at the company and industry fundamentals.
Click here to download an Excel version of the report.
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