Global Equities Present Opportunities, Uncertainty

Text transcript

Welcome to Advisor To Go, brought to you by CIBC Asset Management, a podcast bringing advisors the latest financial insights and developments from our subject matter experts themselves. 

Dave Chan, global portfolio manager, CIBC Asset Management.  

Some of the key trends that emerged in global equities in 2024. Well, we started out the year very optimistically, coming out of 2023 where the markets, both U.S. and the global markets, were up 20% plus.  

2024 also started out quite nice and optimistic. Investors came into ’24 really bullish on the market. A few things that sort of helped them be more bullish are inflation was plateauing and it was on its way down. There was also a view that the Federal Reserve and central banks around the world would start cutting interest rates in response to inflation moderating.  

The other key driver of the optimism was AI. There was a lot of AI investments happening around the world.   

The growth that’s driven by AI initially started with semiconductors or chips, but then as 2024 progressed, it expanded into other markets, such as utilities or power markets. It expanded into industrial companies. And so there was a lot of reasons to be optimistic.  

And lastly, earnings were quite strong or expected to be quite strong in 2024. They were expected to be growing  about 11% over 2023.  

So, as we think about going into 2025, we think that AI investments will likely taper off, but because of the capacity of the AI investments that’s already been made, I think companies will now shift their spending towards capitalizing on all of these AI tools that’s been invested.  

So, we’re likely to see companies reallocate their tech spend, away from hardware and more into software and more into services where they can drive some of these AI-related benefits and efficiencies.  

And then on the consumer side, you know, we think that consumers will look to tap the home equity in their house and maybe perform some renovations, which they haven’t done because coming out of Covid, a lot of them have done a lot of travel and a lot more experience spending, as opposed to investments towards the house.  

So that’s where we think the growth is going to come from in 2025. 

Before we talk about opportunities in 2025, it might be helpful for me to talk about some of the industries or sectors that have done well in 2024 as of November 26, 2024.  

So year to date, we’ve seen, as I said before, AI-related companies have done well, So semiconductors and power producers. And then in the consumer space, we’ve seen consumer household, sort of, be impacted by inflation, and so they’ve been more selective with their spending. And so, what we’ve seen, year to date, is that in some spaces in consumer [discretionary], you know, discount retailers have done well, home entertainment has done well, travel has done well. And what’s not done well is our eating out. So, restaurants have not done well. Anything that consumers spend on big ticket items, so like auto and household appliances have not done well.  

And so, having said that, if we think about going into 2025, we see opportunities in, first off, in terms of regions, we see opportunities across the U.S., and we see opportunities in Europe. And then within those two markets, we see opportunities in a few sectors, such as industrials, materials and technology.  And I’ll dive into each one.  

So, within the industrial space, we see opportunities in areas where there’s a structural growth driver behind it, so things like energy efficiency, data and analytics, or anything that is improving or helping companies improve efficiency. So, we see opportunities there.  

And in terms of materials, we see opportunities in terms of anything that is tied to home renovation, as we believe that next year, people will continue to, because of their inability to move, because of the lack of housing, most people will likely renovate their homes, is our thesis.  

And then lastly, we see opportunities in technology, especially in areas where there’s software and tools that are helping improve labour productivity, as well as companies being more efficient in their operations.  

In terms of challenges for going into 2025, there’s three things that are top of mind for me.  

One is obviously the recent Trump administration, so he’s coming in as the new President, starting in January 2025. And so, there’s a lot of uncertainty right now in terms of the policies that he’s going to put in place. If we look back to his first presidency, we can learn from that experience. And that experience taught us that he’s likely going to implement some tariffs, we just don’t know how much, and we don’t know where. And he’s going to likely implement protectionism in the sense that he’s going to try to promote moving manufacturing back to the U.S. and away from low-cost countries like China and India. And so, that’s one.  

And then the other challenge that we think about is inflation, right? So, as I said earlier, inflation rates are moderating, but if Trump is going to put tariffs in place, that’s likely going to drive inflation higher. And so we don’t know where inflation might end up in next year and that [is a] potential challenge.  

And related to that is, it will also determine where interest rates go. As I mentioned earlier, one of the drivers of the optimism in 2024 was that central banks around the world were starting to cut interest rates. Well, if inflation rates start to tick up again, they might not be as aggressive on cutting interest rates.  

And then lastly, the other challenge that we think about is the consumer. So, the consumer, as you know, accounts for about 70% of the U.S. and Canadian economy. And so, consumer spending is a very important driver of the economy. And so, one of the things that we are measuring is employment levels. In Canada, unemployment has been picking up, and in the U.S., it’s been quite stable.  So, if there’s any changes there, it could impact the markets in 2025. 

In terms of tips for 2025, I would refrain from recommending specific stocks, and all I would say is you should think about the power of compounding in the sense that money invested will compound over a long time, and you’ll make more money that way.  

So, my tip for listeners for 2025 is “time in the market” is better than “timing the market.”

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