2024 was a year of unexpected resilience and market growth dominated by:

• • Outperformance of equity markets – Fueled by the promise of rate cuts and driven mostly by the technology mega-caps such as Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla – the ‘Magnificent 7’.
• • Central bank pivot – As inflation began to return to pre-pandemic levels, global central banks began to shift to monetary easing. Regional differences in rates created investment opportunities for active managers.
• • Bond market normalization
  • • The flattening of the yield curve illustrated a return to normalized conditions where longer term bonds offer higher yields due to higher risk and uncertainty over time.
  • • The post-COVID positive correlation between the performance of stocks and bonds finally started to diminish, although not quite reaching the negative territory, so important for the risk management in traditional socks/bonds portfolios.
  • • Corporate spreads, the difference between government and corporate bond yields, narrowed significantly, indicating stronger confidence in credit markets.
• • Dislocations in private markets – While the asset class continued to demonstrate its resilience, deal activity was reduced as a result of higher borrowing costs, reducing opportunities for private equity investing. Higher borrowing rates also decreased opportunities for private debt investing; however, private debt yields benefited from higher floating rates.

In 2025, four key themes are expected to dominate the markets:

• • Broadening equity market returns – As Magnificent 7 earnings growth decelerates in 2025, the rest of the market is expected to catch up. Further corporate earnings growth is expected across sectors, fueled by a supportive labor market, increased business investment and a rebound in global industrial production.
• • Policy uncertainty with respect to the new US administration and the Republican sweep of Congress casts a fog over the market outlook. On the positive side, there is also the potential for strong tailwinds, particularly through lower interest rates and the increasing adoption of AI. The proposed tariffs, if implemented, could have significant impact in Canada and globally with Industries relying on cross border supply chains such as automotive, energy, chemicals, and forestry products impacted the most.
• • Bond market volatility with regional opportunities – While most developed economies shifted to monetary easing, there are significant regional differences. With growth and inflation outlooks varying significantly across the G7, spread differentials are expected to emerge, which will create opportunities for unconstrained global active managers.
• • Continued growth of private markets – Lower interest rates and healthy economic activity are expected to be positive for private equity. Lower rates will allow for higher levered returns, increased deal activity, and greater valuations of exit transactions. These tailwinds are expected to drive better investment outcomes for private equity investors. Private markets are expected to play a pivotal role in financial markets providing unique capital solutions required by business and industry.
  
  

If you would like to discuss your portfolio, please connect directly with your investment advisor. 
 

Disclaimer

I, Theresa Shutt, have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone and may not reflect the views of Harbourfront Wealth Management Inc. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this should be viewed as a reflection of my informed opinions rather than analyses produced by Harbourfront Wealth Management Inc.