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.

 

This year 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.

 

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.

 

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, I want to highlight our firm’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.

 

 

Enjoy your weekend.

 

 

 

Tim