In this week’s economic update, we are reflecting on the performance of the equity market in North America in 2024, as well as the impacts of central bank policy on inflation and growth. We then look forward to 2025 and the reasons to be optimistic for the year ahead.
Happy Holidays from our entire team
2024 has been a year of positive change: slowing inflation, cuts to interest rates, together with some significant equity market growth in Canada and the US. It wasn’t without its challenges or moments of volatility, but we remain cautiously optimistic about 2025 and the direction we are headed in.
We are proud of what we were able to accomplish this year, and we are excited to continue charting a successful path forward this coming year. We strive every day to deliver an outstanding service and overall wealth management experience. We recognize the trust our clients put in our team to help them navigate risk and identify opportunities – thank you for continuing to choose our team to support your wealth journey.
We would also like to thank our trusted partners for their dedication and commitment to collaboration – and aligning with our goal to always put our clients first.
From all of us at Elinesky Schuett Private Wealth, we’d like to wish you all the best for the Holiday Season, and health and happiness for 2025.
We’re looking forward to being there for you and support your wealth needs in the coming year.
Economic Update
A continued decline in inflationary pressures, combined with ongoing signs of a cooling Canadian economy, recently prompted the Bank of Canada (BoC) to cut interest rates for the fifth consecutive time. In the U.S., the Federal Reserve is also expected to cut rates when it next meets, though investors have tempered their expectations for how far the Fed will go amid resilient economic data. Below, we briefly review 2024 and look ahead to 2025.
North American equities performed well in 2024
This year, while not yet complete, has been another strong one for equity markets. Global stocks are up over 20% so far, led by North American equities. International and emerging markets have also seen above-average returns, though these have been less pronounced. Market gains were led by the artificial intelligence theme, as investors anticipate a potential step change in future productivity and growth. The U.S. mega-cap “tech” stocks – commonly referred to as the “Magnificent 7” – have been the most direct beneficiaries, accounting for roughly half of U.S. equity market returns this year.
Canadian equities had strong returns too
In Canada, the technology sector has similarly had strong performance. The gold sector was another standout as emerging market central banks continued to purchase gold to diversify their reserves, driving the commodity to new highs. Notably, the financial sector contributed the most to the Canadian stock market’s strong returns. While performance varied, sometimes widely, across individual banks, the group as a whole performed well as recession fears eased and businesses and households demonstrated greater resilience under the weight of high interest rates.
Policy impacts on inflation
This year marked a shift in central bank policy, with many cutting interest rates. That has fueled some hope of a better economic and earnings story in 2025 and has led to a broadening in the group of stocks and sectors participating in the market rally. Meanwhile, the bond market experienced less volatility, with yields fluctuating within a narrow range as investors gained confidence in the outlook for inflation and growth. This stability led to solid returns across both government and corporate bonds.
Looking ahead to 2025
We’d like to highlight RBC’s Global Insight 2025 Outlook. In it, our firm’s investment team is mindful that valuations – particularly in the U.S. equity market – are relatively high following another year of strong performance. Yet, valuations are supported by healthy earnings growth and solid economic projections for both 2025 and 2026. Moreover, a more supportive policy backdrop could allow valuations to move higher still.
In Canada, earnings growth is similarly expected to support a more reasonably valued stock market, though some uncertainty tied to the impact of tariffs remains. For bonds, opportunities appear less compelling than they were a year ago, given lower yields and narrower credit spreads. As a result, investors may need to adopt a more selective approach.
Summary
While we see reasons to be optimistic about the year ahead, we are mindful that investor sentiment has become more positive and stock prices already reflect the expectation of higher growth next year. That has left markets a bit more vulnerable should economic and earnings developments fall short of expectations. We echo the sentiment expressed in our firm’s outlook: “watchful, cautious, but invested”.
As always, we are available to connect with you personally. Please don’t hesitate to contact us at 519-822-2024 or elineskyschuett@rbc.com.