Fourth Quarter
Global equity markets experienced robust growth in 2024, with developed markets leading the way, buoyed by continued U.S. economic strength. While the overall performance was positive, the year ended on a somewhat subdued note, with rising bond yields and markets selling off slightly in December. The NASDAQ index was the strongest performer in 2024, up 28.6%, followed by the US S&P 500 index, up 23.3% in local currency. The Canadian S&P/TSX benchmark trailed its American counterpart but was up 18% for the year.
The Bank of Canada (BoC) cut its overnight rate to 3.25% with two 50 basis point reductions over the quarter, which were largely anticipated. The BoC has now lowered rates by a total of 175 basis points in five consecutive meetings and remains the most aggressive central bank in the G10 in terms of rate cuts. In the U.S., the Federal Reserve (Fed) reduced its policy rate by 25 basis points to a range of 4.25% to 4.50%, also in line with expectations. In both cases, the BoC and the Fed clearly signaled that any future rate cuts would be more measured.
The Model Portfolio rose 1% in the last three months of the year and closed the year up 11.5%. While this absolute performance is very strong for a balanced account, it is trailing on a relative performance basis for 2024. However, when looking at longer-term results, our 3-year (6.0% annualized) and 5-year (7.9% annualized) and 10-year (7.9% annualized also) returns are basically in line with our balanced benchmark. For clients who have not added or withdrawn funds, a balanced investor’s portfolio would be more than 20% higher today compared to January 1st, 2023.
With Premier Justin Trudeau stepping down on January 6th, 2025, prorogation upends capital gains 2024 proposal, but Canada Revenue Agency (CRA) had yet to offer guidance at time of publication.
As we begin 2025, while risks remain that should not be underestimated, such as potential tariffs imposed by the US, we believe value-oriented equity may have a catch-up bounce in valuations. Our goal is to continue to compound absolute returns over the long term and avoid the permanent impairment of capital for clients. Disparity in the price valuation of various sectors and companies warrants prudence at this point. As such, we will continue to be selective and disciplined in our approach investing clients’ money.
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Investment Checklist
1. Make 2025 RRSP contribution as soon as funds are available. The maximum is 18% of 2024’s earned income to a maximum of $32,490.
2. Make 2025 $7,000 TFSA contribution as soon as funds are available. The maximum if you have never contributed is $102,000.
3. Make $2,500 annual RESP contribution per child to benefit from the 30% combined government grants.
4. Take advantage of the new FHSA if you are looking to buy a house for the first time in the future
5. Review asset allocation to make sure it is in line with current objectives and risk tolerance and inform us of any special income need for this year.
The calculation of performance data set forth herein has been prepared by the author as of the date hereof and is subject to change without notice. The author makes every effort to ensure that the contents have been compiled or derived from sources believed to be reliable and contain information and opinions, which are accurate and complete. However, BMO Nesbitt Burns Inc. ("BMO NBI”) makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions which may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this report or its contents. Information may be available to BMO NBI or its affiliates that is not reflected herein. This report is prepared solely for information purposes. Please note that past performance is not necessarily an indicator of future performance. The indicated rates of return are gross of fees or commissions. Individual results of clients' portfolios may differ from that of the model portfolio as fees may differ, and performance of specific accounts is based on specific account investiture. The noted model portfolio portfolio may not be appropriate for all investors
11 Sources: Bank of Canada, Bloomberg, BMO Capital Markets