Your Financial Review of January 2025
Economic Resilience and Uncertainties: A Look Back at 2024
A new rate-cutting cycle by central banks, the rise of artificial intelligence, growing pressures on the labour market, and a modest rebound in emerging markets—once again, 2024 presented its share of challenges and opportunities for investors.
After a year defined by the delicate balance between economic resilience and underlying tensions, what lies ahead for 2025? One thing is clear: while 2024 reinforced the notion of a soft landing, emerging signs of economic fragility, particularly in the U.S. and Canada, call for caution.
Throughout the year, markets were buoyed by long-anticipated rate cuts initiated by the Federal Reserve during the summer. These adjustments, warmly welcomed by investors, propelled U.S. equities to record highs. However, the labour market exhibited troubling signs, with rising layoffs and a gradual increase in unemployment, potentially becoming key factors to watch in 2025.
In Canada, rate cuts—though late—offered some relief to an economy slowing at a rapid pace. Inflation, a major concern in 2023, continued to ease, although certain components, such as housing, kept upward pressure on prices.
Finally, the year was marked by remarkable technological advances, with breakthroughs in artificial intelligence reshaping economic prospects across numerous sectors. However, the concentration of gains among a small number of companies raises questions about the sustainability of this trend.
In summary, 2024 showcased the ability of markets and economies to adapt to an ever-changing environment. The pressing question remains: will these adjustments be sufficient to sustain resilience in 2025?
Market review as of December 31, 2024
Fixed Income
The Canadian fixed-income universe fell back slightly at the end of the year, but still posted annual gains for the second year running. Corporate bonds benefitted most from the risk appetite of investors, while long-term bonds lagged.
The FTSE Canada Universe Bond Index posted a return of 4.2% in 2024, while the FTSE Canada Corporate Bond Index delivered a return of 7.1% over the same period.
Equities
Equity markets lost some steam in December, but this slight downturn came at the end of an excellent year for equities. Leadership was firmly in North America, with the S&P/TSX1 and the S&P 5002 posting annual returns of 21.7% and 25.0%, respectively, while international equities in the EAFE2,3 regions recorded more modest gains of 4.3% in 2024.
In the U.S., it was the three sectors associated with the tech giants (Comm. Services, Consumer Disc., Information Technology) that strongly outperformed while the more cyclical segments, such as the small caps of the Russell 2000 and the Energy and Materials sectors, lagged behind.
Oil & Gold
The price of oil (USD/barrel) rebounded in the fourth quarter, supported by an upward revision in growth expectations. However, this rebound was not enough to drive significant appreciation over the year as a whole. In fact, WTI2,4 rose by only 0.8% in 2024.
Gold, meanwhile, ended the quarter virtually unchanged, but performed spectacularly over the year as a whole, with a gain of 27% which was in line with S&P 500 returns.
Currencies
With the resilience of the U.S. economy and the prospect of tariffs from the incoming Trump administration, the USD appreciated sharply against most currencies, notably against the Canadian Dollar (+8.6%).
1. The S&P/TSX Index is the primary Canadian stock index measuring the performance of the Toronto Stock Exchange.
2. S&P500, MSCI EAFE, gold and WTI returns are expressed in US currency.
3. The MSCI EAFE Index is an equity index designed to measure the performance of equity markets in developed economies other than the United States and Canada.
4. West Texas Intermediate (WTI) Crude oil is the North American standard for pricing oil.
Investment Outlook
According to our Investment Strategy team, the most likely scenario for 2025 involves a soft landing taking shape in the first half of the year. While this would finally close the chapter on four years of significant economic disruptions linked to the pandemic, investors still face elevated valuations, a weakened economy, and heightened political uncertainty.
In this context, we continue to advocate for a moderate risk-taking approach, balancing equities and fixed income.
We maintain our overweight position in North American equities. This stance has been rewarding from the onset of the previous trade war through the end of Donald Trump’s first term. Of course, Canada is not immune to American protectionism. However, the mutual strategic importance of our two economies and the generally higher quality of Canadian equities compared to overseas markets should position the S&P/TSX relatively well against the EAFE region and emerging markets. Additionally, while the S&P 500’s concentration in highly valued tech giants remains a vulnerability, combining these with more cyclical and lower-valued Canadian stocks provides a diversified mix that should continue to outperform if the soft landing materializes.
Within fixed income, we maintain a portfolio duration shorter than that of the aggregate bond index to reduce exposure to the longer end of the curve, which is more volatile amid ongoing concerns about deficits and potential tariffs south of the border.
Flexibility will be critical in 2025, as evolving economic and political dynamics could present opportunities throughout what promises to be an eventful year.
Feel free to reach out to us if you would like more information about these outlooks and/or how your portfolio is positioned. We would be delighted to provide clarity at your convenience.
Sincerely,
Cathy, Guillaume, Marc-Antoine and Inuk
514-871-3474
Disclaimer: National Bank Financial - Wealth Management (NBFWM) is a division of National Bank Financial Inc. (NBF), as well as a trademark owned by National Bank of Canada (NBC) that is used under license by NBF. NBF is a member of the Canadian Investment Regulatory Organization (CIRO) and the Canadian Investor Protection Fund (CIPF), and is a wholly-owned subsidiary of NBC, a public company listed on the Toronto Stock Exchange (TSX: NA).
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