Market Recap: Q4 2024 – Large Caps Rebound Amid Stabilizing Rates
As we closed out Q4 2024, equity markets across North America continued to deliver strong performance, with a notable resurgence in large-cap stocks. The TSX Composite extended its gains, rising 3.03% for the quarter to end the year up 17.99%, while the TSX Small Cap index added 0.11 % ending the year up 15.97%. In the U.S., the S&P 500 climbed 3.03% to round out a 23.31% gain on the year, outpacing the S&P 600, which posted a -0.98% decrease to close the year up 6.82%.
This quarter’s narrative shifted towards large-cap stocks regaining momentum following their earlier underperformance relative to small-caps. The rebound was driven by improving earnings reports, easing recession fears, and stabilizing interest rate expectations. While small-cap stocks had previously benefited from a valuation-driven rally, investors appeared to rotate back into large-caps, attracted by their relative stability and stronger balance sheets in a moderating economic environment.
Monetary policy continued to play a pivotal role in market dynamics. The Bank of Canada reduced its target for the overnight rate by 50 basis points to 3.25% on December 11, marking its third consecutive rate cut this year. This decision was influenced by a weaker-than-expected growth outlook, with some governing council members initially advocating for a smaller 25 basis point reduction. In the United States, the Federal Reserve implemented its third consecutive rate cut on December 18, lowering the federal funds rate by 25 basis points to a range of 4.25% to 4.5%. This move reflects ongoing efforts to manage inflation and support economic growth.
Looking forward, the narrowing performance gap between large- and small-cap stocks raises questions about future leadership in the markets. Large-caps may continue to benefit from earnings resilience and global diversification, while small-caps remain positioned to capitalize on potential economic acceleration as monetary easing takes further effect.
Sector-wise, growth-oriented technology and defensive sectors such as utilities and consumer staples saw strong inflows, reflecting a balance between risk appetite and economic caution. With interest rates stabilizing, income-focused sectors like real estate and infrastructure could also attract renewed attention.
As we move into 2025, we continue to maintain a balanced approach to capitalize on both growth and value opportunities. While large-cap stocks demonstrated renewed strength, the underlying support for small-caps remains intact, particularly if economic growth accelerates. Diversification across market caps and sectors will be critical as we navigate evolving monetary policies and economic developments.
We remain committed to monitoring these trends closely and adjusting strategies as needed to align with your long-term financial goals. As always, we are here to provide guidance and insights to help you stay informed and confident in your investment decisions.
