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What happened this week?
Many investors are bearish because contrarian indicators show that there are too many bulls and not enough bears, and therefore too much complacency. This belief is based on the low readings of the VIX; a stretched valuation metric; and narrow yield spreads between corporate bonds versus US Treasuries. In this connection, the Skew Index has been trading at record highs for several months, fearing an imminent 5% pullback, 10% correction or 20% plunge. Citi Bank puts the bear case for the S&P 500 at 5100, stating that massive deportation of illegal immigrants and trade tariffs pose risks to economic stability. On Friday last, the benchmark was 0.6% below its record all-time high of 6090.
At the beginning of 2024, economists and market observers were increasingly confident that the disinflation trend that began the prior year would continue, allowing central banks to shift their focus in favour of easing monetary policy. This view was bolstered by the U.S. Federal Reserve’s (Fed) pivot toward a more dovish perspective as articulated by Fed Chair Jay Powell in December of 2023. Lingering concerns about the potential for a recession, exacerbated by gradually rising unemployment rates in the U.S., also supported the notion that central banks would shift to a more accommodative stance. Indeed, such was the optimism surrounding this scenario that global markets in January were pricing in almost seven 25-basis-point rate cuts by the Fed in 2024.
The most fun anyone has had at a Jerome Powell presser was when a reporter asked about President Trump removing Powell from his job. ?Otherwise, almost all the questions are about when and how much the federal funds rate will be cut.
In 2024, the Bank of Japan (BoJ) raised interest rates for the first time in over a decade, signaling a significant shift in monetary policy. Japanese equities responded positively, reaching new highs as investors anticipated that the driver of the BoJ rate hike –?the strongest Japanese wage gains in years –?would boost consumer spending and economic activity. Government support for wage increases has been central to the government’s economic strategy, and the interplay between tighter monetary policy, wage growth and political backing has created a pivotal moment for Japan’s economy, raising hopes for long-term stability and growth.
Inflation in Canada edged ever so gently toward the Bank of Canada’s (BoC) coveted 2% target in November, ticking down to 1.9% after a brief October blip. Yet behind this benign headline figure lies a curious mix of economic softening, consumer behavior quirks, and the unexpected influence of global pop icons. As Claire Fan of RBC Economics notes, “There were some unusual events in November that slightly distorted price growth in specific categories. Underlying inflation pressures, however, continued to broadly narrow and ease.”
The Federal Trade Commission (FTC) recently blocked the merger of Albertson’s and Kroger, which are the two largest stand-alone grocery chains. Their theory is that the merger would be anti-competitive and cause higher grocery prices. We find this to be another epic failure on their part to understand the purpose of the Sherman Antitrust Act as overseen by the Justice Department and the Federal Trade Commission.
The Federal Reserve’s December meeting delivered what markets largely expected: a 25-basis-point rate cut alongside a tempered forecast for future reductions. But buried in the details of Chair Jerome Powell’s statements and the Fed’s updated projections is a message of cautious optimism balanced by economic pragmatism. Claire Fan of RBC Economics sums it up: “The Fed cut rates by 25 basis points as widely expected, but also signaled a more gradual easing cycle going forward alongside upwardly revised growth and inflation forecasts.”
History shows us that the biggest surprises in a typical year aren't usually from out of left field (although that sometimes happens, as it did in 2020 with the COVID-19 outbreak). Rather, they are often hiding in plain sight. As goes one of my favorite quotes often attributed to Mark Twain: "It ain't what you don't know that gets you in trouble, it's what you know for sure that just ain't so." Surprises most often appear when there is a very high degree of confidence among market participants in a specific outcome that doesn't pan out—for better or worse. So, by identifying the unexpected, here are our top global upside and downside surprises to our base case outlook for next year, in no particular order.
While stocks continue to push higher, leadership remains in a state of flux. The first half of the year was largely a repeat of 2023: tech led the market. By mid-summer the narrative shifted; small caps, an asset class left for dead, staged a remarkable but ultimately short-lived rally. The narrative shifted again in early August, as a somewhat weak U.S. payroll report reignited recession concerns and pushed investors into low-beta, defensive stocks.
The return of Donald Trump to the White House in 2025, often referred to as “Trump 2.0,” is likely to bring renewed disruptions to China and Emerging Markets (EM). Trump’s promised trade policies, including proposals for across-the-board tariffs of 10 to 20% and a specific 60% tariff on Chinese goods, could lead to significant volatility in global supply chains. Such measures could heavily impact China’s export-oriented economy, potentially leading to further shifts in production to other countries.
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Market Performance and Investor Sentiment
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Mergers and Acquisitions
Employment Trends
International Investments
Regulatory Developments
These events highlight the dynamic nature of the investment industry as it approaches the end of the year, with significant implications for market performance, corporate strategies, employment trends, and regulatory landscapes.
Regulatory Enhancements
Mergers and Acquisitions
Market Movements
Corporate Developments
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