2024 Year-End Review: Navigating Market Uncertainty and Political Shifts Across North America

As we conclude 2024, there have been many notable developments across North America, prompting investors to reassess their perspectives, particularly in recent weeks. The TSX Composite cooled off in Q4, posting a modest 2.8% gain, while the TSX Small Cap Index saw a slight loss of -0.22%. Meanwhile, the U.S. economy remains uncertain, with President-elect Donald Trump set to be sworn in later this month. The S&P 500 also posted a stagnant 0.19% increase, compounded by a late rise in government bond yields.

Closer to home, the Bank of Canada has maintained a dovish stance in recent months, but the likelihood of a more conservative approach to rate cuts seems increasingly probable. Current projections estimate a 75-basis point reduction in 2025; however, it wouldn’t be surprising if the Bank of Canada took more aggressive action to meet its 2% inflation target.

The Canadian economy has been underperforming, and this trend is likely to continue. As a result, we can expect lower Canadian bond yields and a weaker Canadian dollar, driven by a reduction in foreign exchange inflows as investors target higher-yielding currencies elsewhere.

In another key development, Canadian Prime Minister Justin Trudeau announced his resignation during these challenging times. This decision was not entirely unexpected, as many key officials within his Cabinet have also stepped down prior to his announcement. Trudeau will remain in office until the Liberal Party selects a new leader, with Parliament suspended until March. This political uncertainty compounds the challenges facing the country, especially with tariff threats from the Trump administration. Without strong leadership, navigating these issues will become more complex.

Turning to the U.S., the Federal Reserve cut rates in its mid-December meeting, but Jerome Powell indicated that future rate cuts would be slower. Projections for further cuts have been halved, with only 50 basis points expected in 2025. This has raised concerns that inflation may persist, leading markets to price in the possibility of higher inflation in the future.

In more recent U.S. news, December’s Non-Farm Payrolls report exceeded expectations, with an increase of 256,000 jobs. This strong job growth has caused market volatility, as investors worry that higher wages could put upward pressure on goods and services, prompting the Federal Reserve to either keep rates steady or raise them. Powell’s comments before the report suggested that there would be no immediate changes to rates, contributing to a bearish outlook in the markets.

While these developments have raised concerns among investors, it’s important to remember the impressive performance of 2024. The TSX Composite rose by 17%, and the S&P 500 increased by 22%. Despite recent economic news, these positive results can be easily overlooked. While these challenges have impacted Canadian bonds and the Canadian dollar, U.S. economic growth has been a key driver for many Canadian businesses, as continued partnerships have directly contributed to their success. It’s crucial to recognize that investing is a long-term strategy, and we continue to monitor these situations with your best interests in mind.

In the short term, there may be a generally bearish outlook for the Canadian economy, but key interest rate decisions could stimulate some growth later in the year. In the U.S., the consensus is for continued economic development, along with domestic regulatory changes related to tariffs and rate cuts. Expectations are based on current market conditions, but future forecasts could change in either direction.

As we enter the new year, ongoing market volatility underscores the importance of maintaining a diversified portfolio that can capitalize on opportunities across different sectors. These events also highlight the need for investment strategies that include allocations outside of the public markets. We remain committed to continuously assessing your portfolios and making informed decisions to help you achieve your long-term financial goals.

Written by: Connor Boehme