Global Asset Allocation Team Market Update – January 2025

Global equity markets lost some steam in December, with the MSCI All Country World declining 2.5% in the final month of the year. The S&P 500 (-2.5%) retreated even despite a solid (+6.3%) gain the “Magnificent Seven” – with widespread weakness elsewhere more than offsetting solid performance in the mega cap space. The S&P/TSX (-3.6%) also struggled, with all sectors in the red. Looking abroad, the MSCI EAFE (-2.3%) also declined – while the MSCI gauge of emerging market stocks edged only modestly (-0.3%) lower.

Fixed income markets also generated negative results, with the latest slate of strong economic data and the Fed’s hawkish pivot prompting investors to recalibrate their expectations for central bank policy. Treasury yields pushed higher in response. The reset hit longer-dated bonds the hardest, sending the 10-year yield to 4.57% – its highest since May. The impact on the short end was more muted, reflecting a shift by investors towards securities that are less impacted by the longer-term outlook. Similarly in Canada, the 10-year government bond yield rose to 3.23% – while the policy-sensitive two-year yield fell to 2.93% after the Bank of Canada made its second consecutive 50 basis point rate cut at the December gathering. For the month, the Bloomberg US Aggregate Bond Index fell by 1.6%, while the FTSE Canada Bond Universe shed 0.7%.

The US dollar (+2.6%) continued to grind higher on the prospect of less rate relief from the Federal Reserve and the growing likelihood that the growth gap between the US and other developed economies will remain wide. The greenback was stronger versus all its Group-of-10 peers, with the euro (-2.1%), pound (-1.7%), and Canadian dollar (-2.6%) all losing ground last month.

Finally, oil (+5.5%) ended the year on a stronger note amid lingering hostilities in the Middle East that are threatening to disrupt supplies. Gold (-0.6%) edged lower as traders assessed the prospect for a slower pace of easing by the Federal Reserve after Chair Powell signaled greater caution on the back of renewed concerns about inflation.

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