After a stellar year powered by a historic gold rally, Canada's main stock market may find its next major engine in a once-maligned sector: oil and gas. Strategists at National Bank of Canada argue that a significant shift in federal policy has transformed the conventional energy industry from a "stranded asset" into a potential driver for the S&P/TSX Composite Index in the coming year.
Gold's Record Run Fuels a Banner Year for the TSX
The S&P/TSX Composite Index has delivered impressive returns in 2025, boasting a year-to-date gain of 30% and is on track to challenge the record annual return of 35.1% set in 2009. For the first time since 2016, the Toronto index is outperforming the S&P 500 in a rising market.
This surge has been heavily fueled by materials, a sector that includes gold stocks. Benefiting from a historic run-up in gold prices, gold stocks now account for more than 12% of the TSX's total market capitalization, the highest share on record and well above the historical average of 4.8% since the mid-1970s. The materials sector overall has delivered a staggering 95.3% return this year.
A Policy Pivot Reignites Investor Interest in Energy
However, the strategists, led by Stéfane Marion, believe another sector is poised to provide significant support. They point to a pivotal change signaled by the federal budget delivered on November 4, 2025, which indicated a more practical approach to conventional energy within Canada's industrial strategy.
This policy shift was reinforced later that month by a memorandum of understanding signed by Alberta and the federal government. The agreement allows the province to develop its fossil fuel industry without facing a federal emissions cap, a move National Bank views as "foundational to making Canada investable again."
"The fact that oil & gas sector is no longer treated as a stranded asset could meaningfully reignite investor interest in the S&P/TSX energy complex and, over time, foster a renewed wave of foreign direct investment into Canada," the strategists stated.
Positioning for the Next Wave of Growth
While National Bank's asset allocation remains underweight in equities, particularly in the U.S. due to high valuations, they see Canada continuing to power ahead. They recommend an overweight position in energy equipment & services and in oil, gas and consumable fuels.
The strategists argue that investors are recognizing the pro-business commitments in the November budget. They also suggest that further progress in Canada-U.S. trade negotiations, which they consider likely in the coming months, could provide another catalyst for domestic equities.
In a related economic indicator, the commercial real estate market is showing signs of life. Office leasing in downtown Toronto soared in the third quarter, absorbing about 1.5 million square feet of top-tier Class A space, largely driven by return-to-office mandates from major banks and the public sector, lifting the national office leasing outlook.
