M&A, AI and energy to power Canada’s market

The Canadian equity market is “well positioned for further gains,” says Catharine Sterritt, lead portfolio manager, Canadian equities, CIBC Asset Management.

In a Nov. 4 interview, Sterritt said a positive outlook can be attributed to several factors, including expanding profit margins driven by cost-saving measures, falling interest rates, rising M&A activity, and structural demand in areas like nuclear power and gold.

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

“Companies are being able to expand their margins across many sectors through the application of AI,” she said, adding that sustainable efficiencies can be found across operations, from communications and call centres to manufacturing and delivery.

Companies have also been adopting technology faster since the pandemic, prioritizing ‘great’ solutions over ‘perfect’ ones to speed time to market, she said. This has allowed companies to implement solutions with less testing, and therefore less cost

It is an example of a newfound willingness to pivot in the face of crisis, Sterritt said. For instance, following the Liberation Day tariff changes, companies were able to quickly reassess supply chains and costs to minimize the impact.

“What we’re seeing is that companies are making sustainable long-term changes to their processes,” she said. “That’s going to result in these margin improvements being captured over a long period of time.”

Another positive for equity performance is a pickup in mergers and acquisitions, she said, which indicates management confidence in earnings and balance sheet strength.

“We’re in early days of this phenomena because right now the M&A is being synergy driven,” Sterritt said. “As M&A carries on, you’ll start to see the private equity competition, and you’ll also start to see follow on M&A.”

Rapid technological change is a key driver, she added. “Companies are making this decision of whether it would be faster for them to develop competing technologies in-house, or to go out and buy them — faster meaning how long it will take them to get those products to market and to serve their customer bases.”

So, where are the opportunities? Sterritt said companies focused on margin improvements and valuation re-rate are best positioned to benefit from AI trends. This includes Canadian banks and companies in the financial sector.

She is also looking at the growth of data centres, which is boosting energy demand and nuclear expansion plans. For instance, in October, the U.S. partnered with Westinghouse in an $80-billion joint venture, owned by Canadian TSX 60 firms Brookfield and Cameco, to expand the U.S. nuclear fleet.

“While we saw shares of Cameco and Brookfield Renewable move sharply higher on this news, we do think that this is going to be a catalyst for further investment in this sector,” she said. “And it’s going to have a multiplier effect, for instance, on the Canadian engineering firms that have a lot of talent on the nuclear side because of Ontario’s long-standing support of nuclear energy.”

Gold provides another opportunity. While it has recently pulled back amid easing geopolitical tensions, she said, long-term drivers of gold strength remain, especially as central banks diversify away from U.S. Treasuries.

“The other thing to keep in mind is that the underlying equities are demonstrating very, very strong free cash flow, and a strong commitment to share buyback programs. And so we do think that this pullback is a buying opportunity.”

Sterritt said uncertainty surrounding the USMCA trade agreement continues to be a risk to the Canadian economy and equity markets. The agreement is up for review in mid-2026, and its outcome will be critical given that key export sectors, like energy and auto, depend on it.

“Those industries are major employment drivers and have a big multiplier effect in the Canadian economy, so that is something that we will certainly be monitoring,” she said.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.