2025 Market Outlook
In 2024, investors saw widespread success as both equity and bond markets delivered strong returns. The battle against inflation seems largely won, with inflation rates declining in most major developed economies, setting the stage for further global economic stability. Central banks, including the Bank of Canada, European Central Bank, and the Bank of England, began cutting policy rates in the second quarter, with the Federal Reserve following suit. Bond investors saw modest returns, and although equities were initially driven by mega-cap stocks like the "Magnificent Seven," the market later saw broader participation. The MSCI World Index, in Canadian dollars, recorded a 23% return by October.
Despite strong returns, some regions like Canada, Europe, and the UK faced slower economic growth, with flat or negative earnings. This did not significantly impact equities, however, as the second half of the year saw interest-sensitive sectors rally. In Canada, the high-interest rate environment dampened economic growth, and real GDP per capita has been negative in most quarters since 2022. In the U.S., inflation continued to trend lower, which, along with a softening labor market, allowed for the Fed's decision to cut interest rates. The outlook for global growth in 2025 depends on a mix of factors, including geopolitical risks and policy changes, particularly with the U.S. election and potential shifts in government policies.
Looking ahead to 2025, investors are advised to remain cautious as various risks, including geopolitical tensions and inflationary pressures, may still cause volatility. However, the economic backdrop remains stable, with expected corporate profits supporting a positive outlook for equities. Central banks are likely to continue their accommodative monetary policies, helping to stimulate economic growth. The key risks to watch include the potential for tariffs and inflationary resurgence, especially in the U.S. and China, as well as market volatility due to uncertain policy shifts.
What does this mean for your portfolio?
Our advice has always been that a well-diversified portfolio is your best protection, and that staying the course is your best strategy. We continue to believe this. Within equities, we recommend focusing on high-quality investments and exploring opportunities in U.S. mid-cap stocks and global equities. Regarding fixed income, flexibility will remain crucial due to potential volatility. Adopting a balanced, diversified approach across asset classes, sectors, and geographies will help mitigate potential risks and support a more stable investment path.
As always, remember that staying invested in a diversified portfolio that aligns with your risk tolerance is your best course of action to achieve your goals. As we navigate the uncertainty of the year ahead, we will continue to provide timely updates.
This information does not necessarily reflect the opinion of iA Private Wealth. The information contained in this email comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.
iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and CIRO. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
