Insights and Strategies
Markets Closing Out a Good Year Despite Uncertainties
Macro Highlights for November
- November started with Trump’s election victory and ended with his threats of a 25% tariff on all Canadian goods. Ultimate impacts on Canada are not yet known, although we expect some tariffs to impact trade, and for pressure on the CAD. In the U.S., we could see slower economic growth, more inflation pressures, slower rate cuts, lower taxes and strength in equities.
- Canadian October inflation numbers were announced showing that the Consumer Price Index (CPI) headline rebounded slightly more than expected, back up to 2.0%, from 1.6% in September. The BoC’s preferred measures of CPI-Trim and CPI-Median were 2.6% and 2.5%, respectively, up from 2.4% and 2.3%. Along with possibly stronger GDP growth in 4Q24, BoC rate cutting could slow.
- A new Canadian two-month (GST/HST) tax holiday on certain items and proposed $250 rebate could temporarily boost GDP with some upward inflation pressures, although tariff clouds could more than trump any benefits.
Financial Market Highlights
- The Canadian benchmark TSX Composite index was up 6.4% in November after increasing 10.5% in 3Q24, and is up 25.8% YTD, versus the U.S. benchmark S&P 500, which was up 5.9% in November after increasing 5.9% in 3Q24, and is up 28.1% YTD. All figures represent total returns in local currency.
- Market breadth has been an important topic in 2H24 as small and mid-cap stocks gained strength on a better economic backdrop in the U.S. markets, with the start of the interest rate easing cycle.
- Canadian sectors that did the best in November were Info Tech (+28.3%), Financials (+7.5%) and Energy (+5.4%), while Communication Services (-7.0%), Materials (-2.9%) and Real Estate (+1.0%) were the weakest.
Upcoming
- We expect rate easing to continue in Canada through the end of the year, with another 25 bp cut on December 11, although any weakening in the labour data (due Dec 6) could increase the likelihood of a 50 bp cut. We expect continuing 25 bp reductions into 2025 until the policy rate hits 2.75% at the April 16 meeting.
- We see further downward pressure on inflation with the Canadian economy operating below potential.
- Trump’s social media blasts, tariff threats, and bi-laterial negotiations are likely to cause more volatility and (Canadian) investor anxiety over the next couple of months until we gauge how seriously to take recent posts after the January 20th inauguration.
