December 2024 Market Commentary

While it was a banner year for North American markets with the S&P 500 soaring over 23% and the S&P/TSX posting a respectable 18.5% calendar year return, December’s performance was relatively lackluster with the S&P 500 down -150 points or -2.50% and the TSX down -920 points or -3.7%. Regardless, both indices have excelled this year and with that investors are smiling as we head into 2025. While, December’s weak performance can be forgiven, or perhaps overlooked, we think it’s still important to understand exactly what transpired during the month for both indices to close on a sour note after such an amazing run in 2024.

The positive market momentum that occurred in November after the U.S. election seemingly came to a grinding halt in December, whereby mid-month a reversal in sentiment had unfolded rather quickly, with resource and industrial stocks selling off, as investors weighed the potential impact on returns of a more hawkish Federal Reserve and a weaker Canadian dollar. Investor worries were confirmed after the Fed said that it would likely slow down the pace of interest rate cuts in 2025, as inflation has been hotter than expected. One could also argue that profit taking, especially in the U.S., played a part in weaker market activity in the final days of trading in December, and with volume inevitably quite light during the holiday season, any weakness can be viewed as merely a lack of buying pressure rather than a shift to negative sentiment. 

Beyond the Fed remarks, investors were also dealing with a significant amount of uncertainty in general with the U.S. fiscal outlook clouded by the threat of a shutdown, debt ceiling drama, and the reality of a $2 trillion budget deficit. With the inauguration date approaching quickly, answers to questions around U.S. trade policy and whether tariffs will be inflationary for the U.S. economy, or not, remain unknown. Meanwhile, the U.S. dollar index is up almost 8% in the last quarter of 2024 alone, which has been misery for the loonie, sinking 4% since the U.S. election and dropping below 70 cents for the third time in the past 20 years. At the end of the day, these events only highlight the need for diversification in your portfolio and as we maintain our North American bias, holding quality Canadian and U.S. stocks, we are optimistic about 2025 and the prospects of providing another positive year of performance in the 10% or more range. As normalization continues, we expect to see the S&P/TSX finish 2025 with a target price of 28,500 and for the S&P 500 we look for a price target of 6,700. 

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