Doherty Market Commentary Q4 2024

The story of 2024 is a stock market that demonstrated remarkable resilience in the face of all sorts of potential threats. Rising long-term interest rates, geopolitical tensions, and a tumultuous US presidential campaign headlined the year, and yet nothing seemed to shake the confidence of equity investors.

In fact, investors seemed almost giddy, bidding up the prices of some of the market’s most speculative companies. For those of us old enough to recall, it does feel somewhat like the market of the late ‘90s. Just substitute in cryptocurrencies for worthless “dot com” stocks and you might be forgiven for feeling the urge to “party like it’s 1999.”

From our vantage point in Canada, things appear a bit less rosy. Due to stagnant economic growth, the Bank of Canada has been aggressively cutting interest rates, which has not been kind to the relative value of our dollar (our sympathies to anyone vacationing in Florida this year). And we face a very loud, opinionated, and unpredictable neighbour to the south, who seems intent on using the threat of import tariffs as a cudgel to coerce trade partners to acquiesce to his various demands.

And so, with threats of an immediate 25% tariff on all Canadian exports to the United States, investors are understandably anxious heading into 2025.

How to best prepare for this? The first thing we want to wrap our heads around is the likelihood of tariffs being imposed, and if so, how long they are likely to remain in place. President Trump is a wildcard, no doubt about that. But the one thing we know about him is that he uses the stock market as a barometer for his performance, and it’s highly unlikely that he would implement policies that would threaten this measuring stick. Investors were also heartened by Trump’s choice of Scott Bessent as Treasury Secretary. Bessent is very well respected in the financial world, and has demonstrated only lukewarm support for tariffs as a “useful negotiating tool.”

Markets already seem to be factoring in the risk of tariffs to a certain extent. Retailers who source inventory from China and manufacturers who make use of offshore labour have generally been losers since election day. To some extent, the risk is “priced in,” and if a negotiated settlement is arrived at, the current fears present a buying opportunity.

As far as political machinations and backroom deals go, we know very little. But while the “fast money” must react (and overreact) to the news flow of each day, our edge is in keeping focused on the long term. And the long term picture is strong. Trump’s tariff threats may actually serve to strengthen Canada over the long term by reducing unnecessary regulation, protectionist trade measures, and create efficiencies through broader cooperation with the US. Combined with the high likelihood of a new government in Canada this year, a stronger economic partnership with the United States holds promise that the Canadian economy will eventually cease underperforming its tremendous potential.

Are tariffs a threat? Of course, but not more than the other threats we have dealt with over the years and decades. Ultimately, a strong trade partnership is best for both Canadian and US citizens. Our leaders know this, despite the insults and bullying, and know that their approval ratings hang on the longer term strength of the economy on both sides of the border.

And so, despite very real fears of what the near future has in store, we maintain the steadfast belief that equities present the single best opportunity to grow and maintain wealth over the long-term. We thank you for entrusting your wealth with us, and wish you and your families all the best in the coming year.