2024: A Year in Review – Canada’s Financial and Stock Markets

As we look back on 2024, Canada’s financial and stock markets reveal a mixed bag of performance, and much of the volatility can be traced back to government policies. From rising inflation, increased taxes, high interest rates to sluggish economic growth, the government's handling of key issues has had a significant impact on both the economy and investor sentiment. While there were some bright spots, the year’s overall performance leaves much to be desired for Canadian consumers and businesses alike.

1. Economic Growth: Slowdowns and Stagnation

At the start of 2024, Canada's economy was facing several challenges that would ultimately put a damper on growth. While the Liberal government had prioritized climate action and social programs, the year proved that these policies had unintended consequences. Global factors, such as high commodity prices and a slowing global economy, combined with internal pressures like rising inflation, meant that Canada's growth prospects were much weaker than expected.

The government’s heavy-handed fiscal policies, including large spending programs, did little to foster a more resilient economy. Instead, these initiatives led to an increase in national debt, increased inflation  and a slower pace of economic recovery. Canada’s GDP growth for 2024 was projected to be around 1.3%, significantly lower than in previous years – and significantly lower than the 3% posted in 2023. The Liberals' continued focus on expanding government programs without meaningful structural reforms to boost productivity and competitiveness left the economy more vulnerable to shocks.

2. Stock Market Performance: Volatility and Sector Weakness

The Canadian stock market, represented by the S&P/TSX Composite Index, faced a rocky year in 2024. Volatility became the defining characteristic, and investors were left frustrated by inconsistent performance across various sectors. The energy sector initially enjoyed a strong start, as oil prices surged in the first quarter, which then saw a levelling out for the next 2 quarters, and finally ending the year once again up - seeing an overall ~22% increase. The S&P/TSX Composite Index overall will end the year up, with a healthy ~18% increase.

Real estate, long a staple of Canadian wealth, took a significant hit in 2024. As the Bank of Canada raised interest rates to combat inflation, the housing market struggled with affordability issues. Mortgage rates hit multi-year highs, putting significant pressure on homeowners and would-be buyers. This downturn was exacerbated by the Liberal government’s policies, which failed to address the root causes of housing supply shortages and rising costs. Despite the government's attempts to implement cooling measures, the affordability crisis deepened.

Financials continued to dominate Canada's stock market, but the sector faced an up and down year. Rising interest rates squeezed profit margins on lending, and banks were forced to navigate a more challenging lending environment. Some major players, like the big five banks, showed solid earnings but faced an uptick in bad debt provisions as consumers struggled with higher borrowing costs. All in all, the Financial Sector faired very well in 2024, ending up approximately 30%.

One of the most notable stories in 2024 was the technology sector. With interest rates at higher levels, many tech stocks faced headwinds. However, Canadian tech companies involved in artificial intelligence (AI), renewable energy, and digital infrastructure have shown resilience, reflecting the growing trend toward technological innovation. The sector as a whole did see growth, but it was inconsistent, and many investors adopted a cautious approach.

3. Inflation: A Lingering Issue

Inflation remained a persistent issue throughout 2024, and it’s clear that the economic policies did little to address the underlying causes. Despite a slight decrease in inflation rates compared to 2022, the cost of living continued to rise, especially in essential areas like groceries, fuel, and housing. Many Canadians felt the strain as their purchasing power shrank, while wages failed to keep up with rising prices.

The government’s response, which largely involved tightening monetary policy through the Bank of Canada’s interest rate hikes, proved to be a blunt instrument. While the aim was to tame inflation, the high rates also dampened consumer spending, which hurt economic growth. Instead of tackling the root causes of inflation—such as supply chain bottlenecks and labor market imbalances—the government opted for measures that only exacerbated the pain for average Canadians, particularly those with large mortgages or outstanding debts.

4. The Canadian Dollar: Weaker and More Vulnerable

Throughout 2024, the Canadian dollar (CAD) showed signs of weakness, largely due to global economic uncertainties and the unbalanced economic policies at home. While the Canadian economy benefited from strong commodity exports in the early months, the currency struggled to gain momentum against the U.S. dollar. The loonie’s performance mirrored the broader issues facing Canada’s economic competitiveness.
As oil prices fluctuated, so too did the value of the loonie. However, without a diversified economy that could withstand the pressures of commodity price volatility, the Canadian dollar remained at risk. The failure to address the broader structural issues—such as over-reliance on natural resources—meant that Canada’s currency continued to lack the stability that would reassure global investors.

5. Looking Ahead to 2025: A Critical Juncture for Canada

As 2025 approaches, Canada finds itself at a critical juncture. The Liberal government’s handling of the economy in 2024 has left Canadians facing higher costs, slower growth, and a lack of long-term solutions. If the government continues down its current path of heavy spending without addressing the structural issues of inflation, housing, and economic competitiveness, the outlook for Canada’s economy remains bleak.

The hope for 2025 lies in the government shifting its focus toward fiscal responsibility and a more market-friendly approach to policy. If Canada is to recover and foster long-term growth, it will need to rebalance its economic priorities and create an environment where businesses can thrive, and Canadians can afford to live comfortably.

The upcoming Canadian election in 2025 (whether early or not) is poised to be a pivotal moment, as voters will likely focus on economic issues such as inflation, job creation, and housing affordability. The election's outcome could lead to significant shifts in policy, potentially influencing Canada's fiscal direction and the stability of key sectors like energy, real estate, and financial services.

Takeaways:

• The Canadian economy experienced slow growth in 2024, exacerbated by the Liberal government’s spending policies and lack of fiscal restraint.

• Energy, financials, and technology were key sectors driving stock market performance.

• Inflation remained high throughout the year, while the government’s response only provided limited relief to struggling Canadians.

• The Canadian dollar showed weakness, underscoring Canada’s over-reliance on commodity exports and the need for economic diversification.

In summary, 2024 was a year marked by missed opportunities and policy failures. As we look ahead, the government will need to re-evaluate its approach to ensure a more prosperous and sustainable future for Canada’s economy.