As 2024 comes to an end, allow us to share some thoughts on what has transpired and what is top of mind for 2025.
Without over-embellishing, equity performance has been outright impressive. With almost no exception, investors have been rewarded for holding stocks since the market bottom in the fall of 2022. From weakness in commercial real estate, to regional banking worries, to red hot technology valuations and geopolitical conflicts there have been any number of reasons to sit on the sidelines for the past two and a half years. Everything seems obvious in hindsight, and very few would have predicted this level of positive performance with such limited volatility along the way. Simply put, risk taking was handsomely rewarded!
This rally could very well continue. Investors and businesses seem poised to profit on President Elect Trump’s promises of deregulation, tax leniency, government efficiency and a relaxed energy policy while not seeming overly bothered by his potentially inflationary tariff threats and usual rhetoric. Strong corporate earnings growth and a stable labour market continue to provide a bullish economic backdrop that has few analysts worried about equity markets.
That is not to say that caution is to be thrown to the wind. There are a number of known risks that could derail the current bull market:
- A re-emergence of inflation in the US fueled by tariffs and reduced immigration
- An earnings miss from one of the tech giants (particularly Nvidia)
- A geopolitical event that plunges the world into global conflict
Furthermore, trailing equity market returns dating to before the pandemic are reaching 15% which is materially higher than long term trends. While this environment can remain entrenched for longer than most would think, an eventual reversion to the mean would prove to be harsh.
However, it is the “unknown unknowns” that provide the biggest market moving catalysts (both to the upside and downside) and predicting those remains an exercise in futility. In 2019 no one was talking about a pandemic that would shut down the global economy and no called for the Metaverse and Web3 to make way for ChatGPT to kickstart the current AI fuel rally.
Taking all these factors into consideration leads to the conclusion that there is no reason to abandon the tried tested and true tenets of sound investment planning:
- invest according to your risk tolerance and objectives
- ensure sufficient diversification
- rebalance accordingly
On that note, we would like to take the opportunity to thank you for your trust and confidence. We remain available, as always to discuss in more detail.
Wishing you all the best in 2025.
