The stock market was a happy place in 2024, with the U.S. S&P 500 delivering a 25 per cent total return, including dividends. Even the laggardly Canadian TSX joined the party with a total return of 21.6 per cent. How did my 2024 predictions turn out compared to the pros, and what do I see for 2025?
My always-accurate first prediction was that most predictions would be wrong. This was, once again, right on the money! Wall Street average analyst predictions were for a slight S&P 500 gain of two per cent. This was their second horrific miss in a row, as their 2023 predictions were for a loss of two per cent, whereas there was an even bigger gain of 26.3 per cent. In 2023 I had predicted a 15-20 per cent gain, and in 2024 a five to 10 per cent gain.
While my projections turned out conservative, they were vastly better than the pros. Interestingly, having missed the boat for two years, Wall Streeters are gaining optimism for 2025, projecting a 14 per cent gain.
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My second prediction was that Canada would experience a recession while the U.S. would not. While no recession has been officially called in Canada, it is clear people are in recession with a declining standard of living, and businesses are in recession with declining capital investment. There are two factors keeping Canada out of official recession: excessive government spending, with the vast majority of new employment being in the public sector, and dramatic increases in immigration. The U.S. economy remains robust; however, excessive government spending is also concerning.
I predicted interest rates would not decrease as much as expected, and that the Bank of Canada would be hamstrung in responding to our weak economy because of an already-weak currency. The prediction was very accurate for the U.S., where the Fed dropped the overnight rate one percentage point rather than the predicted 1.7 points. Additionally, longer-term rates actually increased, exiting the year above where they started. The 30-year treasury rate increased from 4.03 to 4.79 per cent, the 10-year from 3.88 to 4.57, and the five-year from 3.84 to 4.38.
The Bank of Canada overnight lending rate declined as expected, in total disregard to the value of our currency, with the Canadian dollar exiting the year at its lowest level in over 20 years. Our longer-term rates, however, didn’t move much, with the 30-year rate increasing slightly, the 10-year rate exiting the year exactly where it started at 3.25 per cent, and the five-year rate dropping slightly. Short-term rates are set by central banks and long-term rates by the market.
In summary, all these predictions were fairly accurate. I missed, however, my expectation of higher energy prices, with oil exiting the year about where it started, and natural gas increasing only modestly.
Now, for 2025
Fearless Prediction 1: Most predictions will be wrong, again. This one is just too easy to make.
Fearless Prediction 2: An official recession will be called in Canada, and the U.S. economy will slow down.
Fearless Prediction 3: I continue to believe energy prices will recover, and contrary to the majority of current opinion they will trend upward rather than downward. I wouldn’t be surprised to see oil hit $90 and natural gas hit $5 during the year.
Fearless Prediction 4: We will see an uptick in inflation, despite slowing economies. This will once again restrain the expected decline in interest rates.
Fearless Prediction 5: Now that Wall Street analysts are optimistic, I have become more pessimistic. I think we will experience significantly more market volatility than during the last two years, with the S&P 500 exiting with a modest gain of around five per cent and lots of roller-coaster activity along the way. Despite my Canadian recession call, I think our stocks will perform better, with perhaps a 10 per cent gain. The TSX has lower current valuations and investors will begin to factor in regime change in Ottawa.
As always, my main caveat to these predictions is Prediction 1, and they will have minimal impact on how I invest. Given the unpredictability of the market, I have found it advantageous to stay fully invested, find the best bargains at the time, and ride the volatility. Think of the returns missed over the last two years by those who listened to the dire predictions.
Significantly more important than fun with predictions is how our portfolios performed. I would encourage everyone with investments to evaluate their performance by examining the value of portfolios at the beginning and end of 2024, considering deposits or withdrawals made. Were they in line with market performance? All our family portfolios fell in the range of 18 to 33 per cent. The portfolio set up for my now defunct newsletter was up 22.4 per cent and carries a nine-year compound record of 18.2 per cent, illustrating the earnings potential in the market.
The Titanium Strength Model Portfolio gained 23.6 per cent and is now up 94.3 per cent in 6.5 years. It continues to hold all positions from start-up. There is one new company, South Bow Corp. (SOBO), which was spun out of TC Energy (TRP). One share was awarded for every five shares of TRP owned. It caused a minor adjustment to the purchase price of TRP, as some cost is allocated to SOBO. I will use accumulated dividends to add 60 shares of XEG, 10 shares of CNR and 2 shares of BRK.B at year-end prices.
I hope everyone had a prosperous 2024 and offer my best wishes in what lies ahead, as unpredictable as it is!
