David Wong: It looks like the economic picture is pretty positive in Canada heading into the new year. While the economy continues to be growing, it is growing at a slower pace.

 

[Timelapse shots of crowds in wall street and cars on a Los Angeles freeway.]

 

The US economy starts the year from a position of strength. Growth has been resilient and the often forecasted recession hasn't happened.

 

[An empty street. A modern skyscraper. Stacks of coins disappearing. The Federal Reserve building.]

 

Corporate profits are expanding. Inflation has come down a good deal over the last couple of years, and the central bank is moving toward a less restrictive monetary policy.

 

[2025 economic & market outlook: CIO perspectives Expert Access featuring David Wong & David Donabedian]

 

[The Canadian and US flags fly on two sides of an unfinished bridge.]

 

[David Wong, a man in a business suit in front of a window addresses the camera.]

 

[What is your outlook for the Canadian economy?]

 

David Wong: So, there's lots to monitor for the Canadian economy heading into the new year. We need to keep an eye on the momentum behind economic growth here in Canada.

 

[David Wong Chief Investment Officer, Managing Director & Head Total Investment Solutions, CIBC Asset Management]

 

And there are a number of wild cards that we need to be watchful of as well.

 

[Images of the bridge and US / Canada border. The White House.]

 

The proposed tariffs on Canadian goods by the US president certainly have very negative consequences for the Canadian economy.

 

[Canadian flags hang from buildings in downtown Ottawa. A freight train runs beside a river. A large shipping container leaves port.]

 

One third of our GDP is made up of exports, and roughly 80% of our exports go to the US market.

 

[Oil derricks. Timelapse images of cars being manufactured.]

 

So, the oil companies, the auto companies, etc. will face major, major headwinds that will have a negative impact on our GDP.

 

[A man inspects loonies. Loonies are processed, counted and fall in a money pile.]

 

We need to be mindful of the impacts of a weaker Canadian dollar, because that has the chance of importing inflation into our economy.

 

[Timelapse of Yonge and Dundas square. A streetcar runs along King Street. The clock tower on Parliament Hill seen at night. Aerial view of Parliament Hill in Ottawa. Woman hands a card to a cashier. A passport is handed over at customs.]

 

When you also look at the population growth, which is actually expected to decline now over the next couple of years, given the pivot in the immigration policies by the government, we know that that will act actually as a headwind to the Canadian economy as less goods and services are demanded by new immigrants. So all of these things are reminders that having diversification in the portfolio is a wonderful thing.

 

[What factors are you monitoring for the U.S. economy?]

 

[David Donabedian Chief Investment Officer CIBC Private Wealth US]

 

[David Donabedian addresses camera in front of a gray wall.]

 

David Donabedian: Inevitably, the outlook is bound to be impacted by the election results and the policies that may follow from the Trump administration.

 

[Images looking inside the Oval Office. Two large buildings at dusk. To people look at a tablet in a coffee shop. To people look at a tablet in a greenhouse.]

 

We expect a large fiscal package that will include a slight reduction in the corporate tax rate. There will probably also be some further tax incentives for small business.

 

[A school and river sit beside a very large coal refinery billowing smoke.]

 

And there will be an aggressive approach to deregulation, particularly in the areas of energy and the environment. And Donald Trump really fired the starting gun on tariffs back in November. And that's the issue. That could be a game changer for the economic outlook.

 

[Images of the Canada/US border. The Bank of Canada building. Images of various mining operations and oil pipelines. A Government building in Beijing.]

 

Applied selectively and tactically, tariffs can be implemented without a major macro-economic impact, but sweeping tariffs applied across a wide swath of products and countries would, in our view, potentially have a boomerang effect on the US economy with a kind of a stagflationary outcome. We'll be paying very close attention to the new administration's approach to tariffs. We know they're coming, but the key questions are where, how much and for how long.

 

[What is your outlook for fixed income?]

 

David Wong: So, the outlook for fixed income really rests on how the inflation picture will unfold.

 

[Images of the Bank of Canada building. Loonies falling on a table.]

 

While we're comfortably in the middle of the target that the Bank of Canada has set out, we know that any spark of inflation could really change the course for the Bank of Canada. And so, I don't think we're ready to declare the battle completely over on inflation yet.

 

[A woman looks at market data on a monitor.]

 

We know that volatility will rise in the bond market should we see any revisiting of the inflation story. But bond market volatility is very normal in the market over the last ten years. If we look at the volatility of the bond market as a whole, it's roughly 5.3% per year. And this is in the safe asset class. Very important to remember that if you look out over the long-term, the returns that you're going to receive will look a lot like the yield that you're starting with.

 

[A graph that shows monthly interest rates rising over a 9-month period.]

 

And the real danger only happens in any given year, when you're starting with low yields and entering an environment when you're facing rising interest rates as well. Bond yields today are actually significantly higher than their long-term averages over the last 15 years. And we're entering into a rate declining environment. So, we think the setup for 2025 is actually quite attractive for bonds. And the yields today represent a good entry point.

 

[What U.S. economic indicators impact your outlook on the bond market?]

 

David Donabedian: Well, if you sort of start with the bond market, I think the analysis there begins with the Federal Reserve.

 

[The Federal Reserve building and the Federal Reserve seal on a US bank note]

 

We would expect another half a percent to full percent of cumulative cuts over the course of 2025. So that means short-to-intermediate-term yields. Have some room to come down.

 

[A man looks at market data surrounded by monitors. The US Capitol building.]

 

It's a little bit more complicated with longer term bond yields that bond investors will have an eye on the fiscal policy debate that goes on in Congress, focused how it all might impact the enormous US government debt load.

 

[Computer Generated (CG) bond market data.]

 

So, it's possible we don't see any decline in long-term bond yields at all, net-net over the course of 2025.

 

[What is your outlook on the S&P 500?]

 

And in terms of the stock market, you have to start by saying that the US equity market is squarely in a bull market.

 

[A statue of a bull. A CG bull stands in front of market data on screens.]

 

The S&P 500 just completed two years in a row of annual returns, well above 20% in each year. And the economic environment suggests that the bull market should continue in 2025. Profit forecast looks strong. In terms of a cautionary note, I guess you could say that the S&P 500, which is comprised of the largest companies in the US economy, carries a somewhat lofty valuation compared to history, but we expect much more muted returns than the big results that we're seeing in 2023 and 2024. [Market data on screens]

 

[What is your outlook on the equity markets?]

 

David Wong: But there are more attractively valued parts of the equity markets, such as mid-cap and small cap companies, where there may be more material upside in 2025. The US market has captured all the attention, being the strongest performer, but Canada is not that far behind. We've got the interest rate environment as a tailwind at our backs, along with continuing strength in the Canadian economy. [Images contrasting Bay St. with Wall St. Aerial views of Frankfurt and Singapore. A woman looks at a tablet at night in a city. Someone looks at market data on a mobile device.]

 

And when we stack up the Canadian market versus the US market, we’re relatively cheaper on a valuation basis, relatively higher dividend yielding than the US market, when we stack ourselves up against the developed European markets and Asian markets, we see that the Canadian market looks a little expensive relative to those markets, a little bit lower dividend yielding as well. And so having a blend of different geographies in a portfolio makes a lot of sense.

 

[What are your key takeaways for investors?]

 

David Donabedian: Fundamental outlook for the economy in markets is rather positive in the US for 2025. [Aerial views of Chicago and the Michigan Capitol building.]

But we have to keep a very close watch on policy developments.

 

David Wong: So, the key takeaway for investors is really to stay focused on the long-term. Volatility is a natural feature of the markets. Over the long run, we know that the entire year climbs in the US stock market, for example, averages out to about 14%. [A zoom out to reveal the Big Picture Chart]

And yet over the long term, the returns of equities have been solidly positive. When we look out over 20-year horizons, we can't find a rolling period where equity returns are negative. No matter what happens in 2025, no matter what the headlines say, it's important to stay calm and invested and focused on the long term and compounding great returns.

 

[Disclaimer] [The views expressed in this material are the views of CIBC Asset Management Inc., as of December 20, 2024 unless otherwise indicated, and are subject to change at any time. CIBC Asset Management Inc. does not undertake any obligation or responsibility to update such opinions. This material is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, it should not be relied upon in that regard or be considered predictive of any future market performance, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this material should consult with their advisor. Past performance may not be repeated and is not indicative of future results. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "expects", "anticipates", "intends", "plans", "believes", "estimates", or other similar wording. In addition, any statements that may be made concerning future performance, strategies, or prospects and possible future actions taken by the fund, are also forward-looking statements. Forward-looking statements are not guarantees of future performance. These statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results and achievements of the fund to differ materially from those expressed or implied by such statements. Such factors include, but are not limited to: general economic, market, and business conditions; fluctuations in securities prices, interest rates, and foreign currency exchange rates; changes in government regulations; and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. CIBC Asset Management Inc. does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise prior to the release of the next management report of fund performance. The CIBC logo is a trademark of Canadian Imperial Bank of Commerce (CIBC), used under license.]

[Energetic music]

[The US Capitol building. A businessman looking through documents. The Toronto Stock Exchange building. Lettering on a building wall reading “Stock Exchange”. The Toronto city skyline featuring the CN Tower. The White House. A US voting location with voting booths with a sign on their side reading “Vote”. Signage hanging in a room reading: “VOTE REPUBLICAN” and “SUPPORT REPUBLICAN CANDIDATES - SIGN HERE. A city skyline. The White House.]

Avery Shenfeld >> There are so few areas of US public policy that won't have some implication for Canadian assets and for Canadian investors, that it's worth taking a deep dive into what this US election result, and the election of a Republican president, might mean for investors here in Canada.

 

[CIBC logo]

[What a Trump Presidency means for the Canadian economy]

 

[Expert Access featuring Avery Shenfeld]

 

[Avery Shenfeld

Chief Economist

CIBC World Markets Inc.]

 

[Avery Shenfeld, an adult male wearing a suit, is seated in an office environment and addressing the camera.]

 

If you look at how markets reacted in the lead up to this election, and with the resolution of a Trump victory, you saw that this was generally positive for equities, but particularly U.S. equities.

[The Wall Street street sign. A financial district. A boardroom building with several businesspeople. A businessman holding a pen, scanning through a document.]

 We've seen stocks rally in the U.S. in the hope of a lighter regulatory hand, for example. And perhaps in the hopes of some corporate tax reductions or at least lower corporate tax rates than under the Democrats. But we've also seen bond yields move up. So, bond prices have been falling. Long-term interest rates have been pushed up by concerns about future budget deficits being higher, with tax cuts coming, and therefore, more borrowing from the US Treasury and some upward pressure on yields.

[The US Treasury Department building. A sign on a building wall reading “THE DEPARTMENT OF THE TREASURY - 1789”. A downtown commercial district. A historical business-district building in Seville. A downtown cityscape at night.]

Around the world, there have been other equity markets where we've seen some negative impacts on the fear of trade barriers. So, a bit of a mixed reaction overall, if we look from a global perspective.

[Economic outlook: inflation and interest rates]

Ironically, because even though there are so many policy levers that could potentially be pulled one way or another as a result of this election, our forecasts for economic growth really aren't that much changed.

[The US Capitol building. Skyscrapers in a financial district with several Canada flags hanging from a building. The US Federal Reserve building. The Bank of Canada building. A cargo train filled with cargo driving on a railway. A vast rural area.]

Because we're at the stage of the business cycle in both the US and Canada, where inflation has been coming down and the job of central banks is to deliver enough interest rate cuts to accelerate economic growth in Canada and get us back to full employment, and prevent more of a slowdown in the US if trade barriers go up and that ends up stalling Canadian economic growth and threatening our export sector, we'll need even more interest rate relief here in Canada to get that pickup in economic growth to a roughly 2% pace in the next couple of years.

[A large bridge in an urban area. Two large highway bridges traversing a river in a lightly populated area. An urban shipping port. A cargo ship full of shipping containers. A riverside financial district with a Canadian flag hanging from a building. A busy shipping yard. A plot of land under development in a rural area.]

In the US, we do expect growth to slow to again, a little over 2%. And we won't see as many interest rate cuts in the U.S. given their stronger starting point.

[How policy changes can impact the markets]

US equity market might face some challenges and moving a lot higher from here, because we have seen a lot of positive sentiment built into where equity prices already are.

[A grocery store worker changing the price of items on a shelf. An adult woman shopping in a grocery store. An adult woman standing in beside a shopping cart reading the items on a long grocery store receipt.]

And the reality is that the US economy is going to slow a bit from what we've been seeing, not only because we'll need that to keep inflation under control, but also because the Trump administration plans to dramatically lower the pace of population growth, fewer immigrants coming in.

[The White House. The interior of the Oval Office. A timelapse of many pedestrians disembarking from escalators. An urban commercial district. Multiple cars in queue at a busy border crossing. A sign on a building reading “U.S. CUSTOMS and BORDER PROTECTION.” A deserted downtown commercial district.]

And that actually lowers the speed limit for the US economy in the next couple of years. In Canada's case, it's a mixed picture for equities. There are certainly some sectors that could benefit from these policy changes.

[Several oil derricks pumping in a rural area. A transport train rushing down a railway. A vast mining pit.]

The US might, for example, be more amenable to oil imports, more interested in imports of uranium if they develop their nuclear energy, but also some concerns, at least overhanging Canadian export sectors in general from the threat of higher tariffs.

[A bunch of nuclear cooling rods. A large nuclear turbine. A nuclear power plant.]

We saw that really dent Canadian steel exports during Trump's first term.

[A mining area.]

Whether those tariffs are going to come back across the economy as a whole, I think there's going to be some uncertainty and some hesitation. At least until we clarify whether Canada is able to negotiate an extension of our free trade deal with the U.S. and Mexico.

[A large, columned building with Canada flags hanging from it. A disconnected border bridge with a US flag hanging on one side and a Canadian flag hanging on the other. A large bridge crossing a wide river, with Canadian flags hanging from many poles in the foreground.]

So, some potentially bumpy roads ahead, we're hoping that deficits don't rise as much as markets are thinking in the US.

[The interior of the US Capitol building. Empty seats in a large auditorium.]

 That Congress insists on some spending reductions or spending restraint, at least. Long-term interest rates, which moved up on the election result, could come down a little bit.

Certainly, here in Canada, we expect short-term interest rates to be coming down as the Bank of Canada delivers more relief to an economy that does need it right now.

[The Canada Parliament Building.]

[Key takeaways for investors]

Given all the uncertainties we face over U.S. economic policy in the next couple of years, and the material implications that we'll have for our currency, our equity markets, our interest rates, a diversified portfolio, make sense in an uncertain world.

[A close-up of a Canadian $100 bill. The Toronto Stock Exchange building. A downtown commercial district. A person swiping through market data on a phone screen. An adult woman smiling as she looks at a tablet.]

 And certainly, this election and the wide array of policy changes that it could entail, makes the benefit of a diversified portfolio, all that much more beneficial for the average investor.

 

[This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this video should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change.

 

The CIBC logo is a trademark CIBC, used under licence.

 

The material and/or its contents may not be reproduced without the express written consent of CIBC.]

 

[CIBC logo]

 

[The CIBC logo is a trademark of CIBC, used under license.]