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As we look back, the end result was indeed a better outcome (at least at the time of writing). Yes, there was hand-wringing along the way, given the global landscape that included tensions in the Middle East, the U.S. elections and the ongoing war in Ukraine, but none of this translated into any meaningful market volatility. The S&P 500 Index, for example, got through the first 10 months of the year without a dip greater than 8.5% (which happened between July 16 and August 5).
Inflation continued to fall, central banks initiated an easing cycle, economic growth held in, and corporate profits grew. Whether we want to call it a soft landing, a mid-cycle slowdown or a resumption of a normal economic cycle, 2024 will go down as a resilient year that rewarded the patient investor.
Looking ahead to 2025 and the new, new normal
Five themes for 2025:
- The global economy: moving in the right direction
In the new, new normal, which is a lot like the old normal, we see the global economy as advancing through 2025, but the pace of growth will differ by country and region. We believe the fundamentals of the U.S. economy remain stable, whereas Canada and Europe face challenges. China’s performance will depend on its current stimulus efforts and its economy’s reaction to it. It could be a boost to global growth if successful. - Central bank policy: finishing what was started
Even though the fight against inflation has been won, central banks need to finish what they started. It will require a balance of economic priorities between price stability, unemployment and growth to bring policy rates to neutral. - Fixed income: navigating the old normal
As central banks do their part to lower short-term interest rates, government deficits and right-sized inflation will keep longer-term yields higher. - Equities: valuation always matters
Value in equities should be favoured where it can be found, be it security, sector or geography. In 2023 and 2024, equity returns were driven primarily by higher multiples and less so by earnings growth. We believe success in 2025 will come down to the right price for quality earnings. - Post-election policy: the unknown unknowns
Following the U.S. election, policy shifts in trade, taxation and regulation may bring both opportunities and uncertainties that could impact corporate profits and sector performance. However, history reminds us not to overinterpret these expectations, as sectors anticipated to benefit under certain administrations haven’t always delivered market success.
In 2025, we’ll see investors adapting to a world returning to the “old normal”, which requires both caution and opportunism. Regional disparities and shifts in policy will present a challenging yet fertile environment for disciplined investors.
Our focus remains on quality and tactical asset selection, particularly as valuations realign and fixed income once again offers competitive yields. Maintaining a balance across asset classes, styles and regions will be crucial. With diversified positioning and our eye on economic fundamentals, we’re prepared to capture the benefits of a normalizing economy; one that rewards patience, prudence and adaptability.
