The year 2024 was a period of diverging performance in global markets, marked by strong U.S. equity performance. The S&P 500 emerged as the standout equity market, delivering a remarkable 23% gain, underpinned by resilient consumer base, and the dominance of AI-driven innovation led by America’s largest technology companies.
The U.S. economy remained the global benchmark of strength, maintaining momentum despite concerns over elevated, albeit trending down, interest rates. The services sector and consumer spending were key drivers, while optimism around pro-business policies anticipated from the incoming Trump administration further bolstered equity markets. In our opinion, these policies are expected to have a disproportionately positive impact on small-cap equities, with reduced regulatory hurdles and tax cuts likely benefiting smaller businesses. Small caps, as measured by the Russell 2000 Index, underperformed large caps in 2024, gaining only 10%.
The Federal Reserve played a pivotal role in shaping market dynamics, cutting interest rates multiple times during the year. Yet, December brought a hawkish tone from Chair Jerome Powell, signaling caution about the pace of future rate reductions. This dampened investor sentiment in the final days of 2024, adding a note of uncertainty to an otherwise positive year for equities.
Outside the U.S., market performance was mixed. European equities lagged due to high energy costs, weak export demand, and political instability in key economies like France and Germany. These factors weighed heavily on the region’s manufacturing sector, limiting its ability to participate in the broader global growth story. Furthermore, European regulatory and capital formation landscape does not provide favorable conditions for innovation and scaling up of businesses. As a result, they lack large technology companies who can profit from the AI revolution.
Emerging markets delivered more favorable results, buoyed by a late-year rally in Chinese equities and strong performance from India and Taiwan. Nevertheless, the stark divergence between U.S. and international markets became a defining theme of 2024.
Canada’s S&P/TSX Composite Index enjoyed a strong year, rising 18% (before dividends). The Canadian dollar (CAD) exhibited notable weakness, depreciating by 9% against the U.S. dollar during the year. This decline highlighted the divergence between the U.S. and Canadian economic trajectories and underscored the importance of currency dynamics in cross-border investments.
Artificial intelligence remained the year’s dominant investment theme, fueling market enthusiasm and transformative industry shifts. The “Magnificent Seven” AI-focused stocks delivered outsized gains fueling S&P500 returns, while the broader market has yet to benefit from the long-term potential of AI applications. In our opinion, AI promises to reshape industries by enhancing productivity, unlocking new revenue streams, and driving operational efficiencies.
Commodities had a mixed year, with broad indices delivering 5%. Gold stood out, surging 27% as concerns over U.S. fiscal policy and global uncertainties heightened demand for safe-haven assets. In contrast, global investment-grade bonds struggled, delivering a -2% return amid rising yields and a strengthening U.S. dollar. We maintain our view that precious metals and fixed income will underperform equity markets over the long term.
Overall, the year highlighted the importance of resilience, adaptability, and a disciplined investment approach. While the U.S. economy and mega cap stocks led the charge, regional disparities underscored the need for exceptional stock selection and a nuanced understanding of global trends.
Looking ahead at 2025, we maintain our customary practice of refraining from making broad market predictions. However, the pro-business agenda of the incoming U.S. administration is expected to create a favorable environment for U.S.-based businesses. Initiatives such as tax reductions, deregulation, and incentives for domestic investment are likely to enhance productivity and foster growth. At the same time, technological innovation at scale is set to accelerate further, driving transformative changes across industries. Importantly, the clarity around which businesses are poised to benefit from these unfolding dynamics, on top of their already attractive profiles, is greater than in a typical year.
At LionGuard, we invest across numerous U.S. businesses that stand to benefit from favorable dynamics outlined above. Additionally, we favor Canadian-listed companies with large U.S. revenue exposure. These businesses are well-positioned to capitalize on pro-business tailwinds south of the border, are largely insulated from tariff-related concerns, and are also increasingly attractive acquisition targets for U.S. firms, given the strength of the U.S. dollar relative to the Canadian dollar.
