Transcript: 2024 in review: elections, rates and a broadening out of markets

Themes to watch.

BM: I think the biggest theme that drove the markets — at least leading up to that November election — was really the theme of inflation, and the long-awaited and the most aggressive rate-hiking campaigns, I’d say, in decades. Specifically, what I think drove the markets in 2024 was really the question, how would the markets react to the data-dependent Fed. Would the Fed cut the rate? When would the Fed cut the rate? And could they really navigate this soft landing that everyone’s speaking of and was ultimately the goal. The markets really scrutinized every inflation and economic report that came out, really trying to forecast the Fed’s next move. And that really drove a lot of the market movements throughout the year. In terms of other themes that have been important throughout the year, I’d be really remiss if I didn’t mention the U.S. election, which resulted, as we know now in the Trump rally. This further propelled markets in general, in particular the U.S. small caps, which hit new highs on this news. They were really helped by not only the U.S. election, but prospects for stronger earnings growth, much more compelling valuations versus large caps. Another key theme I would mention is really the theme of broadening out the market leadership. So, if you think of 2023, the market was really dominated by the Magnificent Seven stocks, which contributed the bulk of the total return in the S&P 500 in 2023. While the cap-weighted S&P 500 is still outperforming, year to date, the equal-weighted index by about 8%, this is down roughly by 12% in 2023. If you look at the gig sectors’ performance in the S&P 500, eight gig sectors outperformed the S&P 500 index overall in Q3 and that was a notable improvement from only three sectors outperforming in all of 2023. And then, finally, if you look at what’s contributed to the total return of the S&P 500 in 2024, the top 10 names, 50% of those contributed to the total return in 2024, year to date, versus close to 70% in 2023. So, all in all, the market is starting to broaden. I think that’s good news for a continuation of a rally going forward in 2024.

How sectors did

BM: The information technology, communication services were among the biggest contributors to the S&P 500. And that really wasn’t a surprise, as this has been the case over the past two years. Other sectors that really have come on strong in 2024, you look at the financials within the U.S. and Canada have contributed to the S&P 500 overall. Names like Berkshire, Hathaway, JP Morgan driving the sector higher. The yield curve becoming less inverted, that’s generally good news for banks overall. Another sector, depending on really who you talk to, utilities, have been a bit of a surprise. Their performance has been pretty strong on an absolute basis year to date. It’s been, as of October, the second-best-performing sector in the S&P 500, just behind communication services.

And finally, how would he summarize the year from an investment perspective?

BM: I’ll summarize it in one word: resilient. I think really, despite all the challenges, headwinds, coming into the year with higher rates, looking for the inflation impact, the question on soft landing, geopolitical risk, [there were] a lot of headwinds facing markets in 2024. What we got was a lot more than people were expecting in terms of returns, year-to-date, with 20%-plus returns. The main lesson I take away here is active management in the markets really matters, especially in times like these, where you have this heightened volatility, you have all these macro geopolitical headwinds. Active management really helps to find the pockets of opportunities at relatively good value throughout the various regions of the market, and given all the headwinds that investors are facing today, which I don’t think will go away or be lessened in the future.

Well, those are today’s Soundbites, brought to you by Investment Executive and powered by Canada Life. Our thanks again to Brent MacLellan of Canada Life Investment Management. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.

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