Market Commentary – Fourth Quarter 2024

The following market commentary is courtesy of the Plan’s Canadian Equity investment manager, Connor, Clark & Lunn Investment Management.

Robust economic activity, coupled with stable inflation figures, a Republican victory in the US election and easing monetary policy collectively bolstered market sentiment in the fourth quarter. Equity markets experienced significant gains in November, reaching new highs in early December before experiencing some fluctuations towards the end of the quarter. While inflation remained stable, persistent stickiness indicated that disinflationary forces might be diminishing. Additionally, the US Federal Reserve (Fed) reduced its target interest rate by 50 basis points (bps) across two meetings, but indicated a more gradual pace of monetary easing moving forward. With policy still restrictive, this raised concerns about successfully achieving a “soft landing,” increasing market volatility as the year came to a close. US bond yields rose across the yield curve. Crude oil prices experienced a partial recovery in the fourth quarter following a steep decline in the preceding quarter.

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Disinflation, lower policy rates, and better-than-expected economic data led many major equity indices to reach all-time highs over the year before experiencing a modest pullback in December. Nonetheless, equity market returns remained solid in 2024, with positive performance in the fourth quarter for developed markets. The MSCI All Country World Index posted a return of 1.4% in local-currency terms (5.5% in C$) in the fourth quarter. Emerging markets underperformed, declining by 4.2% in local-currency terms, with China (down 7%) reversing some of its exceptional gains from the previous quarter. Despite the potential 25% tari7s on Canadian exports to the US, the S&P/TSX Composite Index benefited from post-US election optimism and achieved a positive return in the fourth quarter.

The Bank of Canada (BoC) lowered its overnight interest rate by a total of 100 bps over two meetings. Despite monetary easing, bond yields moved higher. All in for the quarter, two-year yields rose 4 bps in Canada and 63 bps in the US, while 10-year yields rose 27 bps in Canada and 77 bps in the US. Credit spreads tightened during the period. The FTSE Canada Universe Bond Index was near unchanged over the fourth quarter, declining by 0.04%.

Disclaimer

Unless stated otherwise, all data is as at December 31, 2024 and stated in Canadian dollars. Sources: Merrill Lynch, Pierce, Fenner & Smith Incorporated (BofAML), S&P Global Ratings, and MSCI.