5 • 4 • 3: A spectacular year to put into perspective

Hello everyone. Today, December 4, we're going to take 5 minutes to look back on the year that's just about the end and look forward to the year that's right around the corner.

So, if we start by looking in the rear-view mirror, as you can see, 2024 turned out to be quite a spectacular year for investors. Returns of about 30% for global equities in Canadian dollars. There were some bouts of volatility from time to time, but ultimately with inflation moving down broadly and the labour market in the U.S. remaining relatively strong, the uptrend was sustained on the equity market front. The flip side of this is that without any substantial slowdown in growth, bonds gains were much more modest, but nonetheless in line with running yields. And if you combine these two key asset classes as we often see in a balanced portfolio of 60% equities and 40% bonds, again, as you can see, a spectacular year for investors.

And just to put things into perspective, let's look at how that specific balanced typical portfolio has performed historically on a year-to-year basis. And there are two things, two takeaways from this chart. The first one being just how much the chances of success are skewed towards investors, in favour of investors essentially 8 years out of 10. That portfolio has been positive since the 1990s by an average of about 8%. So, the point here is that whenever we may think at any point in time, just keep in mind that these are the odds that we're facing as investors. The second point is to show how the last few years have been rather extreme in many ways, and specifically in 2022, when that inflation shock spared no asset classes virtually. But since then, we've had quite a positive comeback in 2023, but even more so this year. And the fact that we've been so much in extremes in recent years is definitely a reflection of the reality that the economic landscape has been anything but normal in recent years as we've moved away from the pandemic.

And the reality is that even in as we approach 2025, there's still quite a bit of uncertainty and even fragility in this economic backdrop, all reliant on how the U.S. labour market will evolve. And for now, what we see is that businesses are very cautious, with hiring rates well below historical averages, and consequently, workers are also very much prudent, much less willing to quit their job on their own, the quit rate is at its slowest point in essentially 8 years. But the positive thing here is that despite all of this, layoffs remain very low. And the labour market picture that you see on the screen here, that was literally the best-case scenario in the eyes of the Fed and by extension, in the eyes of the markets. And that's what we got thus far. But let's be clear, these trends, specifically these two, need to stabilize in 2025 because otherwise the logical next step would be to ultimately see that layoff rate pick up.

So, we'll have to remain cautious, but there's ground for optimism. There are some promising signs that are starting to show up on our screen. Specifically, we like to monitor manufacturing activity, which has been relatively weak over the past two years. But when you take into account a series of factors and most importantly, the fact that global central banks have been cutting rates, most of them have been cutting rates since 2024, that suggests that we may get a rebound next year. And if that happens, that would be very much welcome news for markets.

All right. So, 3 takeaways for today. As I alluded to, it's essentially the best-case scenario that came to fruition in 2024 and markets have responded accordingly. But when we look at 2025, we technically see less and fewer cyclical clouds, but we're faced with much more political fog with the arrival of U.S. administration that you know, as well as I do, is fundamentally unpredictable. And there's a lot of things that will likely happen on the fiscal policy front, the trade policy front, foreign policy front. There will definitely be surprises on these fronts next year. And as such, as investors, we must expect sustained volatility next year and ultimately, perhaps gains that are much closer to historical averages and perhaps less extreme than what we've seen in recent years.

If you'd like more details on our outlook for next year, make sure to check out a report that came out in early December. And until then, I wish you all happy holidays and we will talk again in March 2025.