TORONTO — On December 18, 2024, North American stock markets tumbled sharply following the U.S. Federal Reserve's announcement to cut interest rates. The Fed cut its key rate by 0.25 percentage points and adjusted its projections for future cuts, leading to significant declines across major indices.
The S&P 500 index experienced one of its worst days of the year, falling almost three percent, which marked substantial losses for investors. The Dow Jones industrial average dropped 1,123.03 points, or 2.6 percent, closing at 42,326.87, and the Nasdaq composite fell by 716.37 points, or 3.6 percent, landing at 19,392.69. At the same time, the S&P/TSX composite index slipped over two percent, closing down 562.71 points at 24,557.
"When the path is uncertain, you go a little slower," commented Jerome Powell, Chairman of the U.S. Federal Reserve, reflecting the cautious approach taken by the central bank amid changing economic indicators. The Fed’s updated projections hinted at only two expected cuts next year, significantly fewer than the four previously anticipated just three months prior. Market watchers noted the importance of this shift.
According to Andrew Buntain, vice-president and portfolio manager at Fiduciary Trust Canada, the anticipated cut was minor compared to the implication of the Fed's new stance: "Policy uncertainty is going to make for more volatile financial markets in (2025)." This added layer of uncertainty has made investors wary, particularly with the contrasting economic pressures faced by Canada and the U.S.
With the U.S. economy reportedly faring much stronger, Powell indicated there was less leeway for continued rate cuts moving forward. Meanwhile, the Bank of Canada had already reduced rates by half-percentage points recently, with Buntain noting, "We’ve got a different set of circumstances. The consumer is not as flush with cash." These disparities have created diverging market conditions, with many Canadian consumers feeling the pressure from higher interest rates.
Investor sentiment was also influenced by external factors, such as the looming economic threats posed by U.S. president-elect Donald Trump’s tariff proposals, which could affect trade relations and market stability. The Canadian dollar, or the loonie, traded below 70 cents U.S. at 69.72 cents, indicating continued pressure on Canada’s economy going forward.
Buntain expressed skepticism about the Canadian dollar's strength, predicting it would remain under pressure throughout 2025 "unless something really meaningfully changes." The fluctuations portray the growing disparity between the Canadian and U.S. markets as domestic fundamentals diverge sharply.
Despite the day’s losses, Buntain suggested it’s natural for markets to take back gains during the end of the year, especially following a strong performance over the previous months. He also noted the growing trend of broadening the market's scope, encouraging investors to diversify their holdings to mitigate risks stirred by the current volatility.
Canadian equities reflected the decline, with significant losses across various sectors including information technology, materials, and healthcare. Shopify Inc suffered the largest downturn, dropping 7.33 percent to 158.36, along with other major companies like Calibre Mining Corp, which declined 6.81 percent. Meanwhile, some stocks like Torex Gold Resources Inc reported gains, albeit minimal within the broader downtrend.
On the commodities front, oil prices saw slight upward movement with February crude oil contracts slightly up at US$70.02 per barrel. Conversely, gold futures dipped down by US$8.70, bringing the value closer to US$2,653.30 per ounce. The mixed performance of commodities reflects underlying uncertainties tied to interest rate expectations and economic forecasts.
Overall, the market environment at the end of 2024 indicates considerable uncertainty, compounded by changing policies and diverging economic signals from the U.S. and Canada. Investors are closely monitoring the developing dynamics and adjusting strategies as necessary to navigate the tumultuous financial terrain.
