MONTHLY MARKET MUSINGS

December 2024

Wrapping Up 2024

The third quarter earnings season is nearing its end, and the overall results continue to point to further corporate strength and healthy business trends for the quarters to come. As of the time of this writing, 481 of the 500 companies in the S&P 500 Index (S&P) have reported. Of those, 75.8% have topped consensus estimates on earnings with the average earnings beat coming in 6.9% higher than consensus forecasts.[1] U.S. earnings growth is up an average of approximately 8.71% year-over-year in the most recent quarter across the companies in the S&P. For the S&P/TSX Composite Index (TSX), 203 out of 219 companies have reported and 51.3% have beaten consensus earnings estimates while 9.5% were in-line with consensus estimates. Corporate results have been stronger in the U.S. when compared to Canada which mirrors the economic growth seen in both countries in the past 12 months. Overall, the results showed that many companies are still displaying solid revenue and earnings growth, and this should support further strength in the equity markets.

When we look to 2025, we continue to expect equities to be the best performing asset class. We give the edge to U.S. equities over Canadian and expect them to outperform as they did in 20241. Overall, U.S. equities tend to be more growth-oriented than Canadian equities and earnings growth has been quite a bit more prominent amongst U.S. companies. We expect U.S. revenue and earnings to remain strong and continue to grow in 2025.

With the U.S. election now behind us, much of Canada's media attention has turned to the implications of potential tariffs on Canadian imports into the U.S. Most recently, President-elect Trump announced a possible 25% tariff on all goods imported from Canada and Mexico as well as an additional 10% tariff on China's existing tariffs. While there is no doubt that heavy tariffs would have a negative impact on the Canadian economy, as it stands now, this is most likely posturing and a negotiation tactic to get more cooperation in securing the U.S./Canadian border to stop the flow of drugs and illegal migrants rather than an urgent trade agreement issue. The United States-Mexico-Canada Agreement (USMCA) remains in place and can only be reviewed beginning in 2026[2] and therefore, any executive order to levy additional tariffs may be in direct violation of that trade agreement. It is also worth recalling that Trump campaigned on lowering household expenses for American families and tariffs and potential retaliatory tariffs would make it difficult to accomplish that in the near term. Regardless of whether this current threat moves forward or not, it does set the stage for future trade negotiations throughout the next four years. CIBC Economics believes that the Bank of Canada (BoC) will continue to lower the overnight rate until it reaches 2.25% by mid-2025. However, if the U.S. does impose tariffs on Canada, then we could see the BoC cut interest rates even further, below 2.25%, to support the domestic economy and Canadian exporters. While more easing is expected in the U.S., the U.S. Federal Reserve is generally less pressed to cut rates when compared to Canada given the health of their economy and their solid employment numbers.

JAY SMITH, CIM®, FCSI

Senior Portfolio Manager & Senior Wealth Advisor    

jay.smith@cibc.ca

BRAD BROWN, MBA, CFA
Portfolio Manager & Associate Investment Advisor

brad.brown@cibc.com