2024 Market Review & 2025 Market Outlook
Last Month in the Markets: December 2024
Last Year in the Markets: January 1st, 2024 – December 31st, 2024
What happened in 2024?
Last year was productive for equity investors, with Canadian and American indexes delivering remarkable returns for the second consecutive year. The TSX beat its 2023 performance by 10 percentage points, the S&P 500 fell just 1 percent behind last year’s stellar results, as did the Dow, and the NASDAQ more than doubled its 2023 performance in 2024.
The first quarter of 2024 was a steady climb after the first week, a short stumble in April was quickly recovered and a 3-month rise saw a 1-month decline from mid-July until early August. Between a short dip in September and the end of December saw equity values rise steadily and deliver strong results.
Canadian investors who spend time and money in the U.S. did not enjoy the 8 percent loss in value by the Canadian dollar. Thankfully oil prices ended the year where they began, and energy prices contributed to the overall moderating of inflation increases.
As inflation fell and job creation slowed, action was taken by central banks to reduce interest rates to spur economic activity. Tracking inflation, employment and Gross Domestic Product to predict interest rate moves was the theme for analysts and investors in 2024.
H1 2025 Outlook: Political clouds: for better or for worse
The final quarter of 2024 was marked by Donald Trump’s victory in the U.S. presidential election, resulting in an excellent performance for equities with strong market leadership for North America at the expense of the rest of the world. Government bonds, on the other hand, posted slight losses, as Treasury yields rose on the back of better-than-expected economic data and in anticipation of sustained budget deficits. Finally, this environment proved supportive for the U.S. dollar, which appreciated significantly during the quarter.
On the economic front, the U.S. unemployment rate steadied in recent months, which was welcome news given that it had been a major source of concern when it rose rapidly in late summer. Moreover, inflation continued to evolve in line with expectations, allowing the Federal Reserve to continue its easing cycle despite stronger-than-expected economic activity. However, Donald Trump’s return to the White House considerably muddies the waters for 2025. For the time being, the future administration’s trade policies have been at the forefront, with the next American president threatening to impose tariffs on foreign imports in return for more accommodating tax and regulatory policies for businesses. While it remains difficult to predict what will ultimately be delivered, it is clear that these proposals have been enthusiastically received in the United States, as evidenced by the marked improvement in sentiment among American consumers, investors and small businesses. As a result, the balance of risks improved once again during the quarter, so that our baseline scenario now anticipates that a soft landing will be confirmed in the first half of 2025. Investors are nonetheless faced with elevated equity market valuations and, above all, heightened political uncertainty with a fundamentally unpredictable U.S. president.
In this context, we continue to promote standard risk-taking with a balanced approach between equities and bonds. In addition, we have adjusted our geographic allocation in equities towards a significant overweight in North America, a positioning that is aligned with our quantitative model. While we continue to believe that the U.S. equity market should remain buoyant, high valuations and under exposure to cyclical sectors are sources of vulnerability that Canadian equities help to offset. Within fixed income and uncorrelated investments, we maintained our position in corporate bonds, and have increased our allocation to private credit and alternatives for higher predictable yields. In any case, you will hear these themes in our account review meetings, and it’s important to stay the course, keep it simple, and maintain a flexible investment strategy in 2025, as the changing economic and political backdrop is likely to generate opportunities throughout what promises to be a year full of surprises.
