indicatorMarkets

Key themes investors should follow in 2025

By Jason Crumley 30 January 2025 4 min read

Making market predictions can humble even the most knowledgeable investors. The outstanding market performance of 2024, with many major North American indices soaring to new heights, has left some feeling uncertain about what’s in store for 2025. While there are a few topics outlined below that investors should watch this year, the good news is that many of the factors driving market growth remain in place. Economic growth continues to be solid, interest rates are declining and business optimism is increasing. That said, there continue to be a number of risk factors that could significantly impact portfolios in 2025 and beyond.

1. The Trump effect: From tariffs to a 51st state

The US election surprised many and left investors analyzing what a new president and political party could mean for the US and global economies. Even before being sworn into office, President Trump was busy on social media commenting on tariffs and other subjects. We know from his first term that his active social media presence can lead to increased volatility in both equity and bond markets. Additionally, his protectionist commentary has investors concerned that the implementation of tariffs could mean increasing inflationary pressure in 2025. With an “America first” mentality, the new president will need to weigh the cost of harming both economic and trade relations with important partners against both short- and long-term prosperity of American businesses.  

2. Oil: OPEC+, global supply and expanding market opportunities for Western Canada

The West Texas Intermediate benchmark oil price averaged approximately US$76/bbl in 2024. While geopolitical instability supported prices at times, OPEC’s cap on production led to stronger prices. OPEC indicated that the cartel will keep the production quotas in place until at least the end of March. All else equal, the global oil imbalance looks to favour an oversupply scenario in 2025, which could lead to softening prices. In their recent quarterly economic outlook, our partners on the ATB Economic team are forecasting an average oil price of US$70/bbl in 2025. Specific to Western Canada, oil exports have already seen the benefit of the TMX pipeline expansion as exports to China have surged. This could improve western Canadian oil differentials and improve profitability for many oil companies in Alberta and Saskatchewan.

Alberta's exports to China

3. The equity rally: What could slow the seemingly unstoppable equity market?

Last year will undoubtedly be remembered in the investment world by the term Magnificent Seven. The equity rally sparked by artificial intelligence had a collateral effect on many major companies and sectors. This rally led to US indices making multiple record highs in 2024. While much of the same environment continues to exist for artificial intelligence, many investors are wondering about current valuation levels and how revenue and earnings growth will feed lofty expectations. Other factors to consider include the concerns over protectionist government policies that would likely create an inflationary effect in the US and have a significant impact on the Canadian economy. Another major consideration is the resilience of both the US and Canadian economies.

Equity rally is joined by above average valuation levels

Source: Bloomberg


4. Bonds: Inflation, rates and the impact on the yield curve

Declining rates have been welcome news for the economy and while near-term rates have fallen with central bank cuts, longer-term yields have pushed higher, particularly in the US. While many factors influence rates at various points of the yield curve, the recent move in longer-dated rates is not necessarily a bad thing. The yield curve, in most economic cycles, is characterized by higher longer-term rates than short-term rates. Additionally, a healthy economy is fueled by rising demand, which also creates a healthy amount of inflation, reflected in higher longer-term rates when compared to short-term rates. Investors can take advantage of this rise in longer-term rates by looking to extend bond maturities in their portfolios. This can be done through actively managed portfolios, longer-dated exchange-traded bond funds, or an effectively structured bond ladder. Investors will be watching major central banks and market expectations for rate cuts throughout 2025 and into 2026.

Short-term yields declined compared to last year

Source: Bloomberg


5. Geopolitical Risk: Ukraine, the Middle East and other areas of concern.

While recognizing the horrific impact conflict has on the lives of those impacted, it also ripples through the economy, which in turn, impacts companies and investors. While we’ve witnessed remarkable human resilience, the resilience of economies is another factor to consider. The US’s role in NATO may receive renewed attention with the new administration, which can increase concerns over global security. Recall during President Trump's first term in office, there was commentary surrounding the US and its significant financial contributions to NATO. Any risk to the alliance will very likely heighten global risk and contribute to heightened market volatility.

6. The China effect: How will a potential slowdown in the world's second largest economy affect others?

China is facing a number of economic challenges including a real estate market crash, rapidly aging population, weak consumption and a massive debt challenge. China’s benchmark 10-year yield fell below 1.6% and many have talked about zero rates in China to facilitate growth. Government efforts to stimulate the economy have improved the current situations but concerns continue to exist over the world's second largest economy. A continued slowdown in China will have an impact on global markets. Further details on China’s impact on your portfolios can be found in this article.

In conclusion, 2025 presents a complex landscape for investors. While the current economic growth and declining interest rates provide a strong foundation, several risks loom on the horizon. The unpredictable nature of the new US administration, potential oil oversupply, and lofty equity valuations all necessitate a cautious approach. Additionally, geopolitical tensions and China's economic slowdown could further unsettle the markets.

Even with the strong performance witnessed in 2024, prudent investors should maintain a diversified portfolio, carefully assess risk tolerance, and be aware of changing market conditions.

ATB Wealth experts are ready to listen.

Whether you're a beginner or an experienced investor, we can help.