Global Equity Weekly

December 13, 2024 | 16:28

Let it Grow, Let it Grow, Let it Grow

Economist

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Robert Kavcic

Senior Economist and Director
Economics

Robert has been with BMO Capital Markets since 2006. He plays a key role... (Read more)

Equity markets stepped back this week after a run of strong gains, but major North American indices remain near record highs heading into the end of the year. The S&P 500 slipped 0.6% as solid gains in communication services and consumer discretionary were offset by drags in most other sectors. The TSX fell 1.6% with all sectors in the red.

As we head down the closing stretch, equity markets are on pace for a banner year, driven by ongoing disinflation, central bank easing and sturdy economic/earnings growth. Tech stocks have led the charge, with the Nasdaq up 32% late in the year, but the once lowly TSX has been nearly as impressive, up 21%. As you calibrate your growth outlook for 2025, just note that neither the U.S. nor Canadian economy has expanded less than 2.5% in the year following a 20%-plus gain in their respective equity market (pandemic year excluded).

The Bank of Canada cut interest rates by 50 bps, as expected, but suggested that the pace of easing is set to cool down. They said that, “going forward, we will be evaluating the need for further reductions in the policy rate one decision at a time. In other words, with the policy rate now substantially lower, we anticipate a more gradual approach to monetary policy if the economy evolves broadly as expected”. Pretty straightforward. At any rate, there wasn’t much market response to the move given what was/is already priced in—in fact, 5-year GoC yields backed up during the week and rate-sensitive equities lagged. We see gradual further easing through the Spring barring a major outbreak on the trade front, which would prompt more aggressiveness by the BoC.

Meantime, U.S. inflation was as expected in November, and still warm. Headline CPI inflation came in at 2.7% y/y, a second-consecutive month of acceleration. Core inflation held steady at 3.3% y/y for a fourth straight month. If you’re asking if that means underlying price pressures have become stuck, it seems so. Over the past three months, core inflation has run at 3.7% annualized, up from 2.9% annualized over the past six months. We continue to see the Federal Reserve cutting rates by 25 bps on December 18th given that rates are still well in restrictive territory, but the path becomes much less smooth in 2025 if we continue to see firm growth and similar inflation prints.

Source: Bloomberg

Major Index Performance

North American Sector Performances

(% change over period)

Table 1 - S&P 500 Sector Performance

Source: BMO Economics, Bloomberg

Table 2 - TSX Sector Performance

Source: BMO Economics, Bloomberg

TSX Relative Sector Performance

(relative to the index, year-ago = 100; dashed line = 200-day m.a.)

S&P 500 Relative Sector Performance