Stock Market - Canada - December 20, 2024

Equity markets sold off this week as the Federal Reserve cut interest rates by 25 bps, but dialed back expectations of how much easing to expect in 2025. The S&P 500 fell 2.0%, with all sectors in the red, while the TSX gave back 2.7%. The sudden stumble still doesn’t take away from a banner year for investors so far. The S&P 500 is holding onto a 24% gain year-to-date, while the TSX is up 17.4% despite sagging almost 5% from its early-December high. Here are the hits and few misses in 2024:

Most valuable: After surging more than 50% in 2023, S&P 500 technology and communication services led again with near-40% gains so far in 2024. The ongoing run in technology and AI-related sectors also powered the Nasdaq to a 30% advance on the year. If it holds, it would be only the third back-to-back 30%-plus performances since the late-1960s—the others were 1998/99 and 2019/20. Speaking of valuable… gains in these sectors have driven the S&P 500 valuations back to around 22x forward-year earnings, around where they peaked before the 2021 correction.

Most improved: We’ll give a nod to the banks here. While conditions are still challenging on the ground in some areas, firm economic growth, rate cuts and a steepening yield curve have helped drive a strong 34% rally in the U.S. after last year was marred by mini-crises. Even in Canada, where earnings results were very hit-and-miss, the group has managed to churn out a 16% gain, up from 3.6% last year.

Source: Bloomberg

Most sportsmanlike: Bank of Canada Governor Tiff Macklem, come on up. Macklem led an effort worth 175 bps of rate cuts in 2024, setting Canada’s easing cycle on an earlier and more aggressive course than that in the U.S. That certainly helped the TSX awaken, but a number of rate-sensitive areas of the market (e.g., REITs and utilities) still lagged. While the BoC slashed rates 175 bps, 10-year GoC yields are actually up 15 bps on the year. There was some collateral damage too in the currency market, with the Canadian dollar slumping below 70 US cents and losing roughly 8% on the year versus the towering greenback. A Canadian investor unhedged in the S&P 500 would have racked up more than 30% so far this year.

Underperforming expectations: Resources struggled in 2024, with U.S. energy and materials each down on the year. While Canada fared better, in part due a rally in gold prices, oil prices finished the year almost right where they started around $70 for WTI.

On the bench: You had to try pretty hard to post poor equity market returns in 2024 and, if you did, there’s a good chance you were heavy in Canadian telcos. The sector shed more than 20% and was by far the worst performing sector in North America. Competitive pressure, high debt burdens and an aggressive cap on population growth all weighed.

Overall, 2024 had a very early-cycle vibe to it, with technology, financials and consumer discretionary all performing well. And why not, with easing cycles getting underway on both sides of the border. Of course, that leaves the bar higher going into 2025. All eyes will be on how much more central banks can cut rates, and how well growth and earnings respond to the easing already in the system—not to mention the uncertainty on the fiscal and trade fronts.

Source: BMO

Paul is a former IBM Customer Success Manager who has deployed over 300 data and AI solutions across industries and geographies for the past 8 years.

Paul is a Financial Planning, Analysis, and Reporting SME working with data including integration of macro and micro indicators as part of the integrated business planning and reporting cycle.

Paul is a Public Policy Expert that has lecture on public finance as well as written numerous blogs on various areas of Public Policy.

Paul is a Senior Accountant that has deployed over 100 closed, consolidate, and reporting solutions across geography and Industry.