Market Quote: A New Year in Financial Markets Begins
Author: The editor's desk
January 9, 2025
A mid-week analysis of what’s happening in global financial markets from the perspective of AGF’s investment management team.
No Ho Ho Ho
There was no Santa Claus rally to end 2024 but that’s usually not the “be all and end all” when it comes to seasonal signals of what lies ahead in 2025. Still, global equity markets are off to an uncertain start because of profit taking, pension fund selling and interest rate volatility, all of which have triggered larger-than-normal moves in several stock indexes and many individual names. Given that January is usually a higher-volatility month, we expect this current trend to continue for the next few weeks.
Oh Canada
If there was such a thing as an Investor’s Almanac, it might include a section on the so-called Santa Claus Rally and why the lack of one this past holiday season might be worrisome to investors. Yet, historically, a much more important and accurate indicator of what’s in store for equity markets has been how the start to a calendar year often dictates the performance of them over the next 12 months. And while the first few trading days in January have indeed been volatile, investors may end up being thankful that many of the most prominent global stock indexes – at least outside of Asia – have so far delivered positive returns year-to-date.
In many instances, moreover, it’s been the index laggards of the past two years that are leading the way higher. This includes the S&P/TSX Composite Index in Canada, which may surprise many given the litany of negative headlines at play, most of which are mainly associated with the incoming U.S. administration’s tariff (and economic takeover!) threats, as well as political drama related to Prime Minister Trudeau’s recent announcement that he will step down once a new leader of the Liberal Pary of Canada is chosen sometime in the next few weeks.
Of course, whether this outperformance is sustainable remains to be seen, but Canada’s equity market is supported by relatively attractive valuations, steady fundamentals and the potential to surprise further to the upside if foreign buyers are willing to overlook near-term political risks in anticipation of a more pro-growth regime change north of the border.
Turning of the Screw
Already this month, we have witnessed a 13-basis point (bp) range shift in 10-year U.S Treasury yields, but that pales compared to the 25-basis point oscillation in similarly-dated government bonds in the United Kingdom.
Fiscal spectres and frequent tariff threats have contributed to volatility and helped the U.S. dollar recover in the past few sessions. With financial markets barely pricing one 25-basis point rate cut from the U.S. Federal Reserve (Fed) through the first half of the year, Wednesday’s comments from Fed Governor Waller that inflation will continue to moderate were notable. He referenced a measure of inflation that excludes imputed prices, which has shown inflation trending sideways over the past six months. This contrasts with the rise seen in the typical measure that includes estimated price movements for items that are not easily observable.
Next week, several Fed speakers, including Federal Open Market Committee (FOMC) vice chair and New York Fed President Williams, are scheduled to speak ahead of their communications blackout. We’ll be attentive to hear whether Waller’s comments are echoed.
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The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.
Commentary and data sourced from Bloomberg, Reuters and other news sources unless otherwise noted. The commentaries contained herein are provided as a general source of information based on information available as of January 9, 2025. It is not intended to address the needs, circumstances, and objectives of any specific investor. The content of this commentary is not to be used or construed as investment advice, as an offer to buy or sell any securities, and is not intended to suggest taking or refraining from any course of action. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change and AGF Investments Inc. accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained herein.
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Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. Our companies deliver excellence in investing in the public and private markets through three business lines: AGF Investments, AGF Capital Partners and AGF Private Wealth.
AGF brings a disciplined approach, focused on incorporating sound, responsible and sustainable corporate practices. The firm’s collective investment expertise, driven by its fundamental, quantitative and private investing capabilities, extends globally to a wide range of clients, from financial advisors and their clients to high-net worth and institutional investors including pension plans, corporate plans, sovereign wealth funds, endowments and foundations.
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