The U.S. is set to be the top performer among Group of Seven countries, according to International Monetary Fund projections, while world GDP is expected to grow by 3.2% in 2024 and 2025.1 Geopolitical tensions are weighing on the global economy while high public debt and defence budgets are crimping governments’ ability to spend. U.S. consumer spending is being driven by higher earners who are enjoying a wealth effect from gains in housing prices and the stock market while many lower-income consumers are relying on credit cards and other loans to support their spending, with some showing signs of financial strain. In December we revised the twelve-month forward outlook to reflect our view for Stagnation (U.S. Real GDP growth less than 2.5%) over the next twelve- month period, due to looming uncertainty over potential U.S. tariffs and the future trajectory of inflation and Fed rate cuts.
China’s annual inflation rate eased to 0.2% in November. This slowdown highlighted mounting deflation risks in the country despite recent stimulus measures from Beijing and the central bank’s supportive monetary policy stance.2 China’s trade surplus with the U.S. widened to USD 34.9 billion in November from USD 33.5 billion in October.3 Gross Domestic Product (GDP) in the Euro Area expanded 0.40% in the third quarter of 2024 over the previous quarter.4 The annual inflation rate in the Eurozone increased to 2.2% in November from 2% in October.5
Final sales of domestic products in the United States increased by an annualized 3.3% in the third quarter of 2024.6 The CPI in the U.S. increased 0.3% month-over-month in November leading the Federal Reserve to embrace a higher for longer approach to interest rates.7 The unemployment rate in the United States went up to 4.2% in November.8 Among the largest trading partners, the U.S. trade deficit narrowed with China, Mexico, Canada, and the European Union.9 Canadian GDP expanded by 0.3% from the earlier quarter in the three months to September of 2024. In annualized terms, the Canadian economy expanded by 1% in the period.10 The unemployment rate in Canada rose to 6.8% in November, from 6.5% in the previous month.11 Canada posted a trade deficit of CAD 0.92 billion in October, marking the eighth consecutive monthly deficit. Exports to the U.S. fell 2.8%, narrowing the surplus with the U.S. from CAD 7.9 billion to CAD 6.2 billion, while exports to other countries surged 13.1%, reducing the non-U.S. trade deficit from CAD 9.2 billion to CAD 7.1 billion.12
Despite a mid -month pullback, the S&P 500® Index recovered to post its biggest monthly gain of the year, up 5.9% in November. Mid and small cap stocks soared, with the S&P Midcap 400® and the S&P SmallCap 600® up 8.8% and 10.9%. Canadian equities finished the month on the upside. The S&P/TSX Composite increased 6.4%. The S&P Europe 350 gained 1.2% in November. 9 of 16 countries contributed positively to the pan-European equity returns with the United Kingdom the biggest contributor, adding 1.0% to the return in November. Pan Asia equities continued to fall in November, with most of local currencies (except for Japanese yen) depreciating against the U.S. dollar after the U.S. presidential election.
In December, we maintained all exposures held in November. We continue to maintain short duration U.S. fixed income exposure as yields are expected to respond to renewed inflation. Gold is held across all models as a long-term strategic asset, playing a role as an effective hedge against the heightened geopolitical uncertainty and market volatility that is currently in play.
We are headed to a world where protectionism is to be elevated. With equity markets heavily concentrated and fully valued, and with cryptocurrencies not fully embraced and not a replacement for gold, we stand by our view that volatility is best managed using our top-down focus. We expect gold to benefit from continuing strong central bank and investor demand, which has been offsetting declining consumer demand, heightened geopolitical risk due to increased conflicts, and from periods of opportunity costs when markets saw lower yields and a weakening U.S. dollar. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.
Deborah Frame, President and CIO
Drew Millard, Portfolio Manager
1 International Monetary Fund. World Economic Outlook. October 2024.
2 Trading Economics. China inflation. December 9, 2024.
3 Trading Economics. China Trade. December 10, 2024.
4 Trading Economics. Europe GDP. December 6, 2024.
5 Trading Economics. Europe Inflation. December 18, 2024.
6 Trading Economics. U.S. GDP. December 19, 2024.
7 Trading Economics. U.S. Inflation. December 11, 2024.
8 Trading Economics. U.S. Unemployment. December 6, 2024.
9 Trading Economics. U.S. Trade. December 5, 2024.
10 Trading Economics. Canada GDP. November 29, 2024.
11 Trading Economics. Canada Unemployment. December 6, 2024.
12 Trading Economics. Canada Trade. December 5, 2024.
Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. November 30, 2024. Index performance is based on total returns and expressed in the local currency of the index.
