January 2025 Market Commentary

It was a rocky start to the New Year with both equity and bond markets trading down on inflation concerns over the first couple of weeks. In the media the talk of tariffs, wildfires in L.A., Trudeau’s resignation and Trump’s administration picks consumed the headlines. Then, on Jan 27^th Nvidia shares plunged -17% with the announcement of the Chinese AI lab DeepSeek, resulting in a market cap loss of close to $600 billion, the biggest drop ever for a U.S. company. Yet, the following day the markets rallied back and both the TSX and S&P 500 pushed into the green to finish the month with a positive 2.7% and 3.25% return, respectively.

The reality is that the U.S. economy continues to chug along. Several green shoots are helping to prop up markets, like another jump in small business sentiment, a solid advance in the December retail sales, a pop in housing starts, and a big rise in manufacturing production. The Atlanta Fed is now tracking 3.0% growth in its GDPNow or “nowcast” for Q4, and the economy clearly had solid momentum heading into 2025. While the backdrop for growth could potentially be impacted by a trade fight, the outlook for inflation is much more difficult to predict and will depend on the degree of retaliation to U.S. tariffs. All this to say we weren’t surprised when the Fed signalled a pause in their rate cut decision, while on the other hand the Bank of Canada had no choice but to cut another 0.25 basis points to 3.0%. With headline inflation below 2%, at 1.8% Canada’s inflation rate is among the lowest in the industrialized world.

Regardless, the resiliency of the TSX in the face of the tariff threat reflects the following: a) global markets have rebounded significantly; b) the TSX is not a good reflection of the Canadian economy, i.e., predominantly financials, energy, and materials; c) a tariff war could be brief. Without a doubt, there’s a lot of anxiety about the impact a trade war could have on the economy and the uncertainty around the leadership of our own government is of great concern. Yet, with respects to stocks, we remain optimistic and our 10% price targets for both the TSX and S&P 500 in 2025 have not changed. If we can glean anything from the markets in January, it is that the resiliency exhibited in the final week demonstrates to us that the fundamentals outweigh the noise, and we fully expect this truth to be put to the test many times over the course of the year.

If you would like to receive a full copy of our January 2025 market commentary, please email us at msbwealth@nbpcd.com