Global equity markets — opportunities and challenges to watch for

A good story needs a good theme. Themes are important because they help you understand why something happens in a story. Equity markets were a good story in 2024 with many underlying themes. Companies did well, specifically those in Artificial intelligence (AI). Many AI-related companies also did well, such as semiconductor and power producers. In the consumer space, households were somewhat impacted by inflation and more selective in their spending. Discount retailers did well, as did home entertainment and travel. Restaurants didn’t do well, nor did big-ticket consumer items like autos and household appliances.

In terms of regions, we see opportunities in the U.S. and Europe. And within these regions we see opportunities in three key sectors: industrials, materials and technology.

In the industrial space, drivers of structural growth stands to emerge as an important theme. Energy efficiency, data and analytics — anything that can help a company become more efficient stands to do well. With materials, we see opportunities with anything tied to home renovation. Housing is expensive, and because many people won’t be able to afford to move, we see more people doing the next best thing, renovating their homes. Software and tools that can help a company improve productivity and help it become more efficient stand to benefit when it comes to opportunities in technology.

There’s a lot of uncertainty about the incoming U.S. administration and the upcoming policies. Based on the President-elect’s first term, it’s likely that some tariffs will be implemented, we just don’t know how many, how high and on what and who.

The second challenge we see is the outlook for inflation. Although inflation rates have been lowering, depending on the number of tariffs the new U.S. administration puts in place — and how stiff they are — they could drive inflation higher. Should this happen, central banks around the world may think twice about continuing to cut interest rates.

The third challenge is the consumer. Consumer spending is an important driver of the U.S. and Canadian economies. This is one of the reasons economists pay so much attention to the level of unemployment. Unemployment is increasing in Canada, but is stable in the U.S.. If unemployment in Canada doesn’t improve, or the rate in the U.S. begins to grow, it could have a negative impact on equity markets this year.

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