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2024 provided Canadian investors with a strong return to form and saw rebounds from the previous years in many cases. The economy demonstrated resilience despite the ongoing presence of high interest rates, global headwinds, and geopolitical conflicts abroad.
The Gross Domestic Product (GDP), which is a measurement used to represent the growth of a countries economy (total monetary value of all final goods and services produced and sold within a country during a period of time, typically 1 year), generally is considered to be growing at a healthy rate when measuring between 2-3%. In 2024, the Canadian GDP grew modestly by approximately 1.2% (1), mainly driven by investments in sectors like electric vehicle manufacturing, and infrastructure but also through strong population growth. There were constraints on the Canadian economy due in part to higher household debt and elevated mortgage rates which impacts consumer spending (2).
After aggressive interest rate hikes (up to 5%) in 2023 to combat inflation, the Bank of Canada (BoC) began easing monetary policy at the beginning of 2024 and ended the year at 3.25%, with further rate cuts expected in 2025. These cuts have provided some relief to sectors like housing and consumer spending. Through our discussions with our various fund managers, we are cautiously optimistic that the world’s central banks should be successful in engineering a so-called “soft economic landing”
From an indices (equities/stock market) standpoint, the Toronto Stock Exchange (TSX) experienced continued growth in 2024 driven by improvements in corporate earnings and lowered interest rates. Sectors such as financial, technology, and consumer discretionary saw much of these recoveries while traditional areas such as energy and materials (commodities) remained largely neutral4. This growth came amidst some economic uncertainty, with the focus in 2024 being largely around normalization following the volatility experienced in 2022 and 2023.
Other major indices also experienced similar performance in 2024. The US Dow Jones bounced back – largely driven from easing inflation and rate cuts in the second half of 2024 by the US Federal Reserve. The “Magnificent Seven” (Apple, Nvidia, Meta (Facebook), Amazon, Microsoft, Tesla, Alphabet (Google)) provided a disproportionate influence on the NASDAQ and S&P 500 based on their market-cap weighting in these indices. While their returns have been magnificent, it has led some to speculate as to whether these valuations are sustainable5.
The European MSCI (Morgan Stanley Capital International) index benefited from moderate economic growth with the key themes including clean energy, semiconductors, and luxury goods. While earnings growth is projected to be slower than the US, market sentiment remains optimistic for 2025.
Continuing to look ahead, the Canadian economy is expected to grow modestly at around 1.5% for 2025. Fiera Capital, the fund manager for the Educators Financial Groups Growth and Monthly Income Fund, have shifted their asset class positioning to a more defensive stance in late 2024, bringing their exposure to stocks back to neutral. “Though inflation has seen a persistent downtrend through 2024, Fiera are of the view that the risks of an upswing have increased due to continued strong growth in the US and to the announcement of pro-growth and inflationary policies (tariffs, curbs on immigration, etc.) following the US presidential election.”3
With interest rates expected to continue to fall both at home and in the US, as inflation continues to settle, consumer spending and a rebound in residential investment will be at the core of GDP expansion in 2025 6. This backdrop should provide Canadian markets with the landscape to deliver strong earnings growth however, productivity challenges and the potential for geopolitical risks could weigh on overall performance. With the US election behind us and the likelihood for a Canadian federal election in 2025, there is expected to be short term volatility, however, this reinforces the importance of having a financial plan ensuring you are poised to navigate through change strategically.
1 “Question Period Notes.” Canada.ca, 13 June 2024, https://search.open.canada.ca/qpnotes/record/fin. Accessed 6 Dec. 2024.
2 “2025 Canadian Market Outlook.” Bmo.com, 2024, https://entreprises.bmo.com/en/ca/resources/economic-insights/business-strategy/2025-canadian-market-outlook/. Accessed 10 Dec. 2024.
3 Del Rio, Melanie. “January 2025 Educators Financial Group Market Update.” 16 Dec. 2024.
4 Buchbinder, Chris, et al. “Stock Market Outlook: Three Themes for a Broadening Market.” Capital Group EACG, 12 June 2024, www.capitalgroup.com/individual-investors/cy/en/insights/articles/stock-market-outlook-three-themes-for-a-broadening-market.html. Accessed 10 Dec. 2024.
5 Russell Investments. Global Market Outlook- Pent-up Exuberance. 25 Mar. 2024.
6 “Canadian Economic Outlook for 2025: When Optimism Meets Uncertainty.” BDC.ca, 16 Dec. 2024, www.bdc.ca/en/articles-tools/blog/canadian-economic-outlook-for-2025-when-optimism-meets-uncertainty. Accessed 2 Jan. 2025.