Winter 2024 Market Update
2024 has been a year of surprises. The bulk of analysts and market pundits expected a below-average year, at best for investors. Many expected a recession to finally arrive after the rapid increase of interest rates seen in 2022/2023. This was due to the impact of higher rates being felt in the economy. The expectation in 2024 was for a flurry of interest rate cuts; a counter measure for central banks to try and keep slowing economies moving forward.
2024 became a good lesson in ‘stick to your investment plan’ and ignoring the predictions of various media sources. While all the above were predicted late last year, 2024 turned out to be a great year for investors. Both the Bank of Canada and the U.S. Federal Reserve cut rates at a slower pace than expected, as they cautiously watched inflation decline over the year. While this provided a more modest return than expected in fixed income markets, it resulted in continued growth in the largest economy in the world, south of the border.
As we look ahead to 2025, central banks continue to remain in-focus globally. The belief is that the Bank of Canada and Federal Reserve are nearing the ‘neutral rate’, or a more normal interest rate policy. This will be dependent on the path of inflation in the coming months, of which there are renewed concerns thanks to policies announced by the incoming Trump administration. Further, most of these policies seem to be packed full of tariffs for nearly every trading partner the U.S. has.
Geopolitical risks have risen to the forefront as the number of global conflicts continue to grow. While the Ukraine-Russia conflict has seemingly normalized over the past few years, Israel has had armed conflict with a host of countries and groups in the region. The Trump administration has not historically been afraid of conflict, and so this change in government may add another complication to the changed geopolitical landscape.
In summary, the global economy exhibited resilience despite challenges in 2024. Inflation moderated in many regions, prompting central banks, including the Federal Reserve and European Central Bank, to begin easing interest rates, fostering optimism for growth in 2025. While the U.S. economy may achieve a soft landing, Europe faced slower recovery, and China implemented stimulus measures to counter subdued consumption and property sector woes. Emerging markets, especially India, stood out with robust growth in investment and consumption. However, we do recognize that risks persist, including geopolitical tensions and trade frictions, which could impact the pace of recovery. Heading into 2025, opportunities lie in sectors like cyclical equities and real estate, with continued rate cuts expected to boost economic activity. Diversified portfolios, incorporating investments such as higher-quality bonds and emerging market assets, could balance risks and rewards in the evolving landscape. We, as market participants, will continue to stick to your personalized investment plan. Rest assured that we will also continue to monitor and adjust investment portfolios as appropriate, on an ongoing basis.
Fall Economic Update – Special Notice
Yesterday was a big day in Ottawa with the abrupt resignation of Chrystia Freeland, Canada’s Finance Minister and Deputy Prime Minister. It has created some uncertainty in the financial markets, especially considering it was on the day of the release of the Canadian Fall Economic Statement. The big news that came from the economic statement was the considerable increase in the projected 2023-2024 deficit, although it seems this was somewhat priced into the Canadian markets already. Nevertheless, it will play into the 2025 election as will the internal conflicts of the Liberal party. Furthermore, with the recent resignation and inflated deficit, will certainly come some instability in the markets moving into 2025.
Prime Minister Trudeau has already appointed Dominic LeBlanc, former Public Safety Minister, as the new Finance Minister. The quick replacement gives some minor comfort to Canadians. However, it still adds to the unknown trajectory of Canadian politics over the course of the next year. With President-elect Donald Trump set to “negotiate” new tariffs in late January, there will be considerable attention on the people he is negotiating with.
Although this has put increased scrutiny on the Canadian government, we feel our current exposure to the Canadian equity sector is appropriate. We will continue to monitor the situation on the daily and act accordingly.
Miracle On Ice, Investment Portfolio Edition
In the lead up to the announcement of Canada’s Four Nations Cup roster, we go through a familiar experience as the global hockey powerhouse – how do you select a roster of 20 players from dozens of the best players on the planet?
Interestingly, selecting players for the Canadian national men’s hockey team is a lot like building an investment portfolio. Success isn’t about picking the most skilled individuals; it’s about assembling a group that works together to achieve a common goal. The key? Filling the right roles with the right players—or in this case, investments.
Balance Over Brilliance
A team full of star forwards might dazzle, but without strong defensemen or a reliable goalie, they’ll struggle to win. In investing, this translates to diversification.
- Growth Investments (Forwards): These are your high-potential assets, like tech stocks or emerging markets, aiming to drive big returns.
- Stable Investments (Defense): Think bonds or blue-chip stocks that protect your portfolio from sharp losses.
- Risk-Free Assets (Goalie): Your cash reserves or alternative investments ensure stability when markets get rough.
Each plays a distinct role, working together to achieve balance and resilience.
Fitting the System
Great hockey teams don’t just look for the best players—they look for players who fit their strategy. Similarly, your investments should align with your goals and risk tolerance.
- Specialized Roles: A defensive forward may not score much but is invaluable in penalty kills. Similarly, some investments, like index funds, may not outperform in the short term but provide steady growth over time.
- Team Chemistry: Ensure your investments complement each other rather than relying too heavily on one sector or asset type.
Success comes from building a system where each part contributes to the bigger picture.
Adapting for Success
Both hockey teams and portfolios need to evolve. Coaches tweak lineups; investors rebalance portfolios.
- Replace Underperformers: If a player—or an investment—isn’t contributing, it’s time to make a change.
- Adapt to Conditions: Market trends shift, just like opponents’ strategies. Stay flexible to keep your portfolio competitive.
Whether on the ice or in the market, it’s not about stacking the lineup with stars. It’s about finding the right mix of players—or investments—that work together to achieve success. This means that you have players that are effective at both ends of the ice. Focus on roles, balance, and adaptability, and you’ll be building a portfolio—or team—designed to win.