January 2025 Market Snapshot

Monthly Overview
Equity markets were generally weaker in December, although the limp into the end of the year was not enough to tarnish what was a stellar year for stocks. The rally in 2024 was driven by a positive backdrop of resilient economic activity, robust corporate earnings growth, and easing monetary policy by global central banks. Canada’s main stock index recorded a gain of 18% – its best year since 2021, while the S&P 500 achieved its second consecutive year of 20%-plus performance for the first time since 1998. In CAD terms, the index soared 34.4% The S&P/TSX Composite Index was down 3.6% in December but rose 3.0% in the year’s final quarter. Five of the benchmark’s underlying sectors were positive in Q4. Leading the way was the information technology sector, which posted a gain of 22.1%. Small-cap stocks, as measured by the S&P/TSX SmallCap Index, eked out 0.1% for the quarter and a 16% gain for the year.
The U.S. dollar crushed the loonie in Q4, jumping 6.4% and strongly boosting the returns of foreign markets from a Canadian investor’s standpoint. Note that all returns in this paragraph are in CAD terms. U.S.-based stocks, as measured by the S&P 500 Index, rose 0.2% in December and finished the quarter higher by 8.7%. Consumer discretionary and telecommunication services led the gains, with respective returns of 21.5% and 15.7%. International stocks, as measured by the FTSE Developed ex-U.S. Index, fell 2.2% during the quarter, while emerging markets lost 0.5%. These benchmarks were up 9.8% and 19.4% on the year, respectively.
Canadian investment grade bonds, as measured by the FTSE Canada Universe Bond Index, were flat during the quarter but added 4.2% on the year. The key global investment grade bond benchmark we follow rose 1.0% in Q4 and added 7.2% on the year. Global high-yield issues were up 6.4% in Q4, and added 17.4% on the year.
Turning to commodities, natural gas prices rose 8.0% in December and surged 24.3% in Q4. The price of a barrel of crude oil rose 5.5% in December and 5.2% in Q4. Gold fell 0.6% in December but eked out a 0.2% gain in Q4. Both silver and copper had a negative month, falling 4.7% and 1.3%, respectively, and a negative quarter, falling 7.0% and 11.6%, respectively.
Inflation in Canada cooled to 1.9% year-over-year in November, with most of the major categories, especially shelter and recreation, posting further softening. The Canadian economy created 51,000 jobs in November, as the nation’s unemployment rate rose to 6.8%. In its final meeting of 2024, the Bank of Canada opted to lower its lending rate by 50 basis points, bringing it down to 3.25%.
U.S. nonfarm payrolls increased by 227,000 in November, as the unemployment rate held steady at 4.2%. The consumer price index rose to 2.7% year-over-year in November, driven primarily by a slower pace of energy price declines. In its final meeting of 2024, the Federal Reserve lowered its key interest rate by a quarter percentage point, bringing the target range to 4.25–4.5%. The Fed indicated that it probably would only lower twice more in 2025.
Content sourced from Bloomberg; data as at December 31, 2024.
Chart of the Month: Will History Rhyme for the S&P 500 in 2025?
Last year was a stellar year for stocks, and the S&P 500’s annual total return of 26.7% was the second year in a row in which the gain for the index exceeded 20%. Going back to 1950, there have only been eight other instances where the benchmark posted consecutive calendar year returns of more than 20% on a total return basis. There are plenty of forecasts predicting what 2025 might have in store for markets – some bullish, some bearish – but an extremely rudimentary historical analysis reveals that the market was higher in the year after two consecutive 20%+ years three-quarters of the time, and the average gain in those up years was 19%. Even when there were losses after two consecutive 20%+ years, they were far from extreme. We are dealing with a very small sample size here, and the predictive value of this historical analysis may be limited, but the point is that markets are not destined for bad things simply because the two preceding years were so good. And if, as Twain suggested, history indeed does rhyme, investors may have much to look forward to in 2025.


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