It’s Beginning to Look A Lot Like Market Recap Time: 2024 Edition

It’s that time of the year again where we chat with some of our favourite portfolio managers and product leaders and ask them to reflect on 2024 and what they anticipate for the year ahead. Read on for their thoughts on the market impact of a Trump presidency, what sectors and asset classes were on the good and bad list this year, and more.

Jump to:

1. Will Trump be naughty or nice for markets in 2025?
2. When analyzing their portfolios for the year ahead, what should investors be sure to check twice?
3. Do you see a nice sleigh ride ahead for crypto markets in 2025, or are you expecting a cold winter for digital assets?
4. What innovations do you hope will deck the halls of the fintech sector in 2025?
5. What gifts, in the form of investment solutions, might be a good addition to a portfolio this holiday season?
6. Like the Grinch and Charlie Brown’s Christmas tree, private assets can be somewhat of a misunderstood asset class. What do investors need to know about these products and their function in portfolios?
7. Is the tech sector setting the tone for a holly jolly 2025, or are there challenges lurking like lumps of coal in a stocking?

Will Trump be naughty or nice for markets in 2025?

From a market perspective, the most certain factor the Trump presidency will bring is the likelihood of many, often inflammatory, headlines that may move markets temporarily. Currently, the big topics are tariffs, regulation, tax, and spending. But who knows which headlines will move markets the most?

Investors clearly have a positive memory of Trump’s first term, based on market gains. And as humans, we all like causal relationships – it makes us feel better and more in control. Unfortunately, this is rather simple thinking. In our opinion, markets started to perform better earlier in 2016 before the election because—for the first time since before the 2008 financial crisis—we had global synchronized economic growth.

Starting points matter. In 2016, the economy was picking up steam, interest rates were low, and quantitative easing was in full swing. Today, growth is slowing, rates are higher, and tightening is underway. Equity markets were cheaper in 2016 with modest growth expectations. Now, they’re more expensive with higher growth expectations. Corporate tax cuts had a bigger impact then, when taxes were high. Can we expect the same result from cutting taxes from a lower base?

Trump Game Plan – We think there are two choices here: Act or Watch.

• Act: One option is to take Trump’s announcements at face value, like his tariff plans, and quickly adjust exposures. This would mean reducing Canadian equity, exports, and Canadian dollar exposure. While this offers the emotional benefit of taking action, it has drawbacks. Trump will make many announcements over the next four years, many of which may not materialize or will be part of longer processes. For example, the 25% tariff on Mexico could just be a bargaining chip for border security. The frequency of announcements makes reacting difficult and could lead to chasing your tail.

• Watch: There are very few constants when it comes to investing, but one constant is that markets often overreact in the short term. We could blame the financial media, which will cover the bejesus out of anything Trump-related but lightly glance over important economic news. We could blame fast-money algo trading systems...it doesn’t matter though.

While the market may grow numb to Trump's headlines, future announcements could still create noise. However, the economy and earnings ultimately drive the market. Policy can influence the path, but macro forces are stronger. Of course, listen to the noise, but don’t necessarily react. In fact, watching to see if the market materially overreacts and then acting may prove better for your portfolio.

When analyzing their portfolios for the year ahead, what should investors be sure to check twice?

After two years of strong equity returns, many investors might be pleasantly surprised when they look at their year-end statements. However, while the economic backdrop remains positive, it’s difficult to see a third year in a row of +20% returns in markets. (Our 2025 forecast delves more into the question of whether we’re headed for a market “three-peat” next year.)

As a result, investors should take a second look at what level of risk they are comfortable taking, as well as what amount of volatility they can accept. Anyone who can remember President Trump’s first term will recall how markets will swing on a single tweet; the next four years should be similar and will add further risk to markets going forward.

Do you see a nice sleigh ride ahead for crypto markets in 2025, or are you expecting a cold winter for digital assets?

Ah, the eternal question of whether crypto will sleigh its way to new heights or if we'll all be left shivering in a digital snowstorm. From what I've gathered, the tea leaves (or should I say, the blockchain blocks) suggest a rather optimistic sleigh ride into 2025. Here's the scoop:

• Bitcoin might be aiming for altitudes that make $150,000 look like a reasonable holiday destination, with some even whispering about $200,000 as if it's the north star for crypto enthusiasts.
• Ethereum seems poised to continue its journey as the grand old duke of DeFi, potentially marching towards $5,000 or even $10,000, as long as the developers keep upgrading its blockchain like it's some sort of digital Hogwarts.
• Altcoins are expected to have their own little party, with Solana potentially hitting $1,000, indicating a vibrant alt season might be on the horizon.

However, let's not forget, predicting crypto markets is like trying to forecast the weather in the quantum realm - it's all probabilities, and probabilities can be as fickle as a cat in a box. Regulatory frameworks are shaping up, which could either be the warm blanket the market needs or the icy wind of change.

So, while the signs point towards a festive sleigh ride, keep your mittens on—this is crypto we're talking about. One minute you're riding high with Santa's sleigh, the next, you might find yourself in a cold winter's tale. But hey, isn't that what makes the journey exciting? Remember, in crypto, every winter is followed by a spring where new digital flowers bloom...or at least that's what the optimists keep saying.

2024 was a big year of product innovation in financial services. What were some of the biggest milestones from an industry perspective, and what innovations do you hope will deck the halls of the sector in 2025?

It's been an exciting year for innovation globally and that has created great opportunities for the asset management and wealth industries.

• Arrival of Spot Crypto ETFs and Doubling Stablecoin Supply:
  We witnessed the U.S. launch of spot Bitcoin and Ether ETFs this year—three years after we pioneered the world's first versions of these products at Purpose in 2021. This milestone helped fuel the digital asset sector, and with the news of Trump’s election, Bitcoin soared past $100k USD for the first time ever. The combination of easier access and growing institutional adoption is setting the stage for the crypto space to reach new heights in 2025. Stablecoins are the second-most important crypto story of 2024. With supply reaching $200b at end of 2024, stablecoins are expected to double in 2025 to $400b.

• AI and Quantum Computing Breakthroughs:
  Meanwhile, NVIDIA and AMD continue to push boundaries in AI hardware and software, powering the world's top AI leaders like OpenAI, Grok, and Anthropic. In fact, we’re so excited by these companies that we launched AMD and NVIDIA Purpose Yield Shares ETFs this year, giving investors the ability to earn monthly yield while holding these powerhouse stocks. On the tech side, Google’s Willow quantum chip announcement sets a new era in quantum computing that will unlock new innovations previously unimaginable.

Looking ahead to 2025, I’m excited for more breakthroughs in AI-enabled investing and personalized wealth solutions as well as real-world applications of novel crypto products and solutions.

At Purpose, we’ll keep leading the charge in innovation across asset management, wealth, and crypto to ensure our clients have access to cutting-edge solutions that help them reach their goals.

What gifts, in the form of investment solutions, might be a good addition to a portfolio this holiday season?

This holiday season, as we reflect on a year shaped by persistent inflation and ongoing shifts in interest rates, it may be the perfect time to add a few “gifts” to your portfolio that offer steady, risk-adjusted income. Instead of relying solely on traditional bonds, consider exploring alternative income streams that can weather these changing market conditions. This approach helps safeguard against inflation risk, while at the same time providing a more balanced source of returns.

You might also consider defined outcome strategies, which allow you to understand your potential gains and losses up front. This clarity makes it easier to navigate market uncertainty and stay confident about the path you’ve chosen for your investments.

One solution that stands out is the Purpose Structured Equity Yield Fund (PSY). By blending structured note income with built-in downside protection, PSY offers a convenient, medium-risk choice for investors seeking dependable returns. With a solid track record of active management over the past five years, PSY has earned its place as a reliable, risk-adjusted income source—one that can help round out your portfolio’s holiday “wish list.”

– Jason Chen, Purpose Structured Equity Yield Fund Portfolio Manager

Like the Grinch and Charlie Brown’s Christmas tree, private assets can be somewhat of a misunderstood asset class. What do investors need to know about these products and their function in portfolios?

Private assets nicely complement traditional investments like stocks and bonds and offer several unique benefits to a portfolio, such as:

• Diversification: With bonds and stocks more coorelated these days, it's harder to diversify portfolios. But by introducing exposure to non-public markets, private assets reduce reliance on traditional investments and can help improve portfolio balance.
• Enhanced Returns: Private assets have the potential for higher long-term performance thanks to being actively managed and having the ability to capitalize on inefficiencies in private markets.
• Income Generation: Many private assets, such as private credit or income-generating real estate, provide steady cash flow.
• Reduced Volatility: These assets are less correlated to public market fluctuations, offering stability and reducing overall portfolio volatility.
• Inflation Protection: Real assets, like real estate and infrastructure, tend to hold or increase their value over time, making them a hedge against inflation.

In part, private assets are misunderstood because the asset class has historically been relatively inaccessible to everyday Canadians. To help improve this access and democratize the asset class, we launched the Purpose Private Asset platform. The platform is an innovative suite with unique fund offerings, backed by globally recognized underlying fund managers, representing a range of private asset opportunities.

Is the tech sector setting the tone for a holly jolly 2025, or are there challenges lurking like lumps of coal in a stocking?

The Yuletide cheer is set to expand to the rest of the market instead of a magnificent 7-only nice list. While the top brass have experienced decades of outperformance and superior earnings growth, we believe we are a set up for a rally of the rest at the beginning of 2025.

Earnings growth is the #1 determinant of stock prices over the longer term. The MAG7 saw 35% annual earnings growth in 2023 while the S&P493 saw earnings decline by 4%. This is set to shift to 15% for MAG7 and 11% for S&P493 by 2026 estimates. A 39% gap down to 4%! While the mega caps have enjoying decades of strong free cash flow and accelerating growth, we believe there is an attractive risk/reward setup for the rest of the market.

We are particularly excited about the application space in artificial intelligence in the first half of 2025. Software companies that were left for dead in the first three quarters of 2024 are now mounting an impressive comeback. Valuation multiples were compressed, as were fundamentals, but we are now turning a corner. Tech companies that can layer on AI agents will need to prove they still have an important part in the tech stack and we need to see growth re-accelerate on the back of these new features.

We also continue to believe that the infrastructure buildout also has several years of runway. In this space, there is a strong bifurcation of AI beneficiaries vs. the rest of the market. We are invested in positions that focus on accelerated computers, power generation, data center construction, and hardware components (such as cooling).

It's time to stuff your stocking with more growth.

For a more in-depth take on what’s to come, check out our 2025 market forecast. Feeling nostalgic? Check out our market recaps from 2023, 2022, 2021, and 2020.

Sources: Charts are sourced to Bloomberg L.P. unless otherwise specified.

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