Between growth and uncertainty: a review of 2024

At the start of 2024, investors held mixed views on the outlook for the year. Some were counting on a soft landing for the U.S. economy, with continuing growth throughout the year. But not everyone was so optimistic; others thought it was still too early to declare victory because the risks of a recession in the United States were still present or even underestimated.  

In the global arena, the economic forecasts were bleaker. In Europe, a recession seemed inevitable, while China faced persistent difficulties. As for geopolitical uncertainty, it was even greater, fuelled by numerous conflicts. Investors seemed to agree unanimously on one thing only: lower interest rates and an easing of monetary policies in the coming months.  

In the end, the global equity markets recorded another stellar year. The North American stock markets stood out, with spectacular returns exceeding 20%, or even 30% with the currency effect. Their performance was due to several factors: falling inflation, expectations of significant cuts to key rates, a U.S. economy supported by a resilient consumer and the rise of artificial intelligence.  

Despite this context of continued growth, recession fears have not completely disappeared. The slowdown in the U.S. labour market has led many to conclude that the Fed has gone too far and that a recession is inevitable. At the same time, geopolitical tensions have continued to darken the landscape. Numerous and persistent conflicts and wars have maintained a climate of uncertainty on a global scale.  

Lastly, 2024 was also marked by intense electoral activity. Nearly half of the world’s population voted in key elections, such as the U.S. presidential election or the snap election in France. These political events had a significant impact on the markets, increasing their volatility. 

  Sources: FTSE International Limited, S&P Dow Jones Indices LLC and MSCI Inc.

Sources: Bank of Canada, Bloomberg Finance L.P.

Source: Trust National Bank.

* Effective October 25, 2024, the International Equity Fund acquired assets from the FÉRIQUE Asian Equity Fund in a reorganization and the investment objectives of the Fund were changed. The performance prior to the effective date of the reorganization represents the performance of the FÉRIQUE European Equity Fund (now the FÉRIQUE International Equity Fund) with its prior investment objectives. The reorganization and the investment objectives changes could have materially affected performance of the Fund had they been in effect throughout the entire performance measurement period.

Canadian fixed income

Canadian bonds returned 4.2% on the year, as measured by the FTSE Canada Universe Bond Index, despite a stable performance in the fourth quarter. The return was supported by the Bank of Canada’s cutting of its key rate from 5.00% to 3.25%, starting in June. The rate cuts were intended to counter the economic slowdown, while the inflation fell to 1.9% in November on an annualized basis. Even so, the labour market showed signs of weakness, with the unemployment rate rising to 6.8%. 

Outlook

In 2024, the major Western central banks started to adjust their policies in order to bring interest rates back to more “normal” levels after the rapid increases of recent years. This trend is expected to continue in 2025 but at a slower pace, particularly in the United States, and will directly affect returns on Canadian bonds. Several factors could complicate the decisions of the U.S. Federal Reserve (Fed) and slow the expected rate cuts. The U.S. economy remains resilient, while inflation, although declining, is persistent. Donald Trump’s return to the White House could also add uncertainty, with promises of tariffs, mass deportations and tax cuts that could reignite inflationary pressures and drive up deficits. 

The Bank of Canada therefore plans to act cautiously in 2025. It will be closely monitoring the Fed’s moves as well as local issues, such as policy changes in the wake of Justin Trudeau’s resignation early in January.  

Despite this environment, fixed income continues to play a key role in portfolio diversification, providing a degree of protection in the event of a selloff on the equity markets, while offering attractive income. 

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Canadian equities shone in 2024 with a return of 21.7% as measured by the S&P/TSX Composite Index. The return was driven mainly by the robust financial sector, as Canadian banks benefited when interest rate cuts allayed concerns about mortgage defaults.  

The fourth quarter was also positive, with a gain of 3.8%. Even so, the Canadian dollar slipped below US$0.70, falling to its lowest level since March 2020. Its weakness was due largely to the widening gap between the Fed’s and the Bank of Canada’s key interest rates, with the BoC cutting its rate further in 2024. Political uncertainty, exacerbated by the resignation of Finance Minister Chrystia Freeland, also put pressure on the loonie at year-end. 

U.S. equities dominated the markets in 2024. The S&P 500 Index was up 25% in U.S. dollar terms, an advance similar to its 2023 return. It was the first time since the late 1990s that the index posted two consecutive years with gains exceeding 20%.  

In the fourth quarter, the S&P 500 rose 2.4% on investor optimism about the new Trump administration’s economic policies, which were seen as business-friendly. That being said, the enthusiasm was tempered by the Federal Reserve, which signalled a slowdown in rate cuts in 2025 owing to inflationary risks and doubts about pro-growth economic policies.   

The return on the S&P 500 was even higher in Canadian dollars: an annual increase of 36.4% and a quarterly increase of 9.0% owing to the loonie’s weakness, which amplified returns on investments in U.S. currency for unhedged Canadian investors, namely those who did not use strategies to hedge against exchange-rate fluctuations. 

Even so, over the long term, currency fluctuations tend to balance out because they are driven by business cycles, interest rates and relative growth between the two countries. As a result, periods when the Canadian dollar weakens are often followed by periods of strength, with the fluctuations tending to amount to a wash. Investors with a long-term view should focus more on the fundamental performance of their assets rather than short-term changes in exchange rates. 

Despite a strong return of 13.8% for 2024 as a whole, developed market equities outside North America had a challenging fourth quarter, with a return of -2.1% in Canadian dollars. Europe was hit especially hard by high energy costs, weak export demand and political tensions in France and Germany.  

Conversely, Japan stood out on optimism about the end of deflation, the weak yen and further corporate governance reforms. Japanese equities were one of the best performers among the world’s major stock markets. 

Emerging markets also came under pressure in the fourth quarter, with the MSCI Emerging Markets Index down 1.9% in Canadian dollars. Currency volatility and concerns about possible tariffs on exports to the United States weighed heavily on these markets. 

Even so, for the year as a whole, the MSCI Emerging Markets Index was up 17.9% in Canadian currency. China was the main driver of the advance. The Chinese government stepped up its efforts to support a slowing economy, with tentative signs of recovery in December. In addition, tensions with the Trump administration could prompt the Chinese government to introduce new stimulus measures in the coming months. If such measures boost consumption in China, international and emerging market equities could benefit. 

The outlook for 2025 is a mix of hope and uncertainty.  

In the United States, the situation looks generally positive. But, after a year of exceptional performance, expectations are more modest. Flagship sectors, such as information technology and artificial intelligence-related companies, have experienced tremendous growth, making them vulnerable to a correction if their earnings fall short of expectations. But if economic growth continues, it will be beneficial for sectors that have performed less well in recent years, providing investors with more diversified opportunities.   

On the political front, Donald Trump’s re-election is cause for both enthusiasm and concern. On the one hand, his perceived business-friendly policies are reigniting enthusiasm for the U.S. economy. On the other hand, his protectionist approach and unpredictability are fuelling concerns, particularly about global trade. Inflation, although down from 2022 and 2023 levels, also remains a question mark. Trade barriers and labour market tensions could keep it elevated, complicating the Federal Reserve’s decision making.  

Internationally, the picture is just as mixed. In Europe, structural challenges, particularly in Germany, continue to hamper the recovery. Amid trade and political tensions and a persistent energy crisis, the continent is moving slowly. Meanwhile, emerging markets are showing some resilience. They are benefiting from new supply chains and increased local consumption, allowing them to better withstand economic shocks, although they are being tested by the strength of the U.S. dollar. In China, trade tensions with the United States and internal vulnerabilities are also acting as a drag on the economy, despite the government’s efforts to boost growth. 

We have entered 2025 in a context of opportunities and challenges with significant political changes, relatively high volatility and evolving economic conditions that nevertheless remain generally positive.

 That being said, it’s essential to keep in mind that the performance of industries and regions varies over time. In the long term, fluctuations offset one another, creating a natural balance that helps reduce stock market risks.  

A balanced portfolio that is tailored to your risk tolerance and needs, and is also based on sound diversification and a long-term perspective, is therefore a key element in your achieving financial independence.