There are lots of reasons to suspect that 2025 is going to be full of market ups and downs, and many experts are telling investors to buckle up for this wild ride.
The year will kick off with arguably the most impactful event on January 20th, with the inauguration of the U.S. President-elect Donald Trump for his second term.
“There’s going to be a lot of volatility in policy over the course of the next four years,” says Gennadiy Goldberg, head of US Rates Strategy at TD Securities. “If I look back on Trump’s first term, this is what every day felt like – that nothing was settled, a policy announcement was possible at any day or time, possibly contrary to prior policy.”
Second-term whiplash
The markets already had a taste of these extreme announcements after Trump announced he plans to bring in a 25 per cent tariff on goods and services from Canada and Mexico. But it’s still too early to tell what will become policy and what is simply a negotiating tactic, says Goldberg. The only thing anyone can say for sure is that this will be an administration that is likely to cause some investor whiplash.
“I think investors who are waiting for things to fully settle are going to have to wait a very long time for that to happen,” adds Goldberg. “Because at any point on any day, at any hour, there could be a tweet or a statement basically upsetting the status quo. I think that’s going to be the theme of this second Trump presidency, is just overturning the status quo, which means the unsettled feeling is something they’re doing on purpose.”
The likelihood of tariffs coming into play next year for U.S. trade partners, whatever the magnitude, is pretty high, explains Sadiq Adatia, chief investment officer at BMO Global Asset Management.
“And that won’t be just tied to one economy, but for multiple economies,” he says. “I don’t think the bite is going to be as big as the bark.”
Potential market positives
The ‘red wave’ the Republicans accomplished – meaning the party has gained control across congress, giving them power to pass policies – could see some positives in the market.
“The environment is going to be more friendly for markets,” says Adatia. “Whether it’s going to be tax cuts, deregulation, just additional stimulus into the economy, that should be a positive confidence boost.”
However, tariffs and other unfriendly measures with trading partners could raise the overall geopolitical risk with potential supply chain squeezes and retaliation from these countries, says Adatia.
“All of that’s going to be heightened,” he explains. “As we know, Trump’s not necessarily going to be very friendly with a lot of people, and that just adds more volatility to markets.”
The central bank effect
Looking at the global economy as a whole, Ashish Utarid, IG Wealth Management’s assistant vice-president of Investment Strategy, says he believes it’s moving in the right direction and says central bank policy is going to be “critical” in 2025.
“Most central banks are finishing what they’ve started,” he explains. “On the fixed income side, we believe that the new normal is higher interest rates, and so the reality check for investors and borrowers is that rates are going to stay in that 3.75 per cent to 4.25 per cent range inevitably. We’re done with the zero interest rate policy.”
On the equity side, Utarid says that valuations are pretty stretched.
“However, that doesn’t mean that they’re poised for a correction,” he adds. “We can still see some expansion in the value of stocks, but we want earnings to catch up. Earnings for most corporations are still robust heading into 2025.”
Mortgages and higher rates
There are many Canadians that have lived the majority of their adult lives in a low interest rate environment, since the 2008 financial crisis, and may have thought this was the norm (which historically it is not). This misconception could have many carrying too much individual debt, especially as 1.2 million Canadians will renew their mortgages in 2025.
The Canadian Mortgage and Housing Corporation calculates that the average homeowner renewing next year will see their monthly payments increase by 30 per cent.
“We’re calling it the mortgage mountain, where we’re going to see an increase in payments, more specifically a change in cash flow,” says Utarid. “That’s going to be a big shock to some borrowers.”
