Mackenzie Investments 2025 Market Outlook: New U.S. Administration Could Set the Stage for a Shifting Landscape in the Year Ahead

Mackenzie anticipates that 2025 will be marked by both opportunities and challenges, with stabilized economic growth driven by steady inflation for most major developed economies and lower interest rates from the majority of central banks. While the stage is seemingly set for a favourable investment landscape, the outcome of the 2024 U.S. presidential election could still bring significant ramifications for various economies worldwide with changes to U.S. tariffs, tax rates, deregulation and immigration policies.

“The incoming U.S. administration is expected to have potentially significant implications for geopolitical risks and trade flows, and for the outlook for various asset classes and sectors. Policy decisions could also lead to a relative growth advantage for the U.S.,” said Steve Locke, CIO of Fixed Income and Multi-Asset Strategies, Mackenzie Investments. “In response, Canada may need bigger rate cuts than other G7 countries to boost our economy, leading to lower Canadian bond yields and a weaker Canadian dollar compared to the U.S.”

In its 2025 Market Outlook, Mackenzie has identified three major factors for investors to keep in mind that will drive global economies and markets in the year ahead:

The Battle with Inflation Has Stabilized – For Now

Inflation has finally been stabilized after continued efforts by central banks.  This sets the stage for a favourable investment landscape for equities and some nuanced opportunities for bond investors in 2025.

“The stable economic backdrop and a positive outlook for corporate profits paints a favourable picture for equities in the coming year, especially with central banks turning their attention towards economic growth,” said Lesley Marks, CIO of Equities, Mackenzie Investments. “However, investors should still be wary of risks and potential volatility. Inflation may have steadied for now, but the introduction of any new economic policies related to tariffs and onshoring from the incoming U.S. administration could result in another fight against inflation in our future.”

Expect Policy Divergence from Central Banks

Throughout 2024, most of the world’s central banks began lowering interest rates after embracing the idea that inflation had been contained. From their 2024 peak in April, Canadian and U.S. 10-year government bond yields dropped by more than 100 basis points by late summer before experiencing a rebound in October.

Mackenzie believes this will continue in 2025, albeit at differing paces. Slowing economies, including in Canada and the EU, are expected to lower policy rates much further than the U.S.

“In the aftermath of the rate-cutting cycle in 2024, Canadian bond yields are likely to decline relative to U.S. yields, which we expect will put continued downward pressure on the Canadian dollar,” said Mr. Locke. “The Bank of Canada may need to cut more aggressively than the U.S. Federal Reserve to stimulate a rebound in domestic demand and close the output gap.”

Pockets of Value Remain in the U.S. Market

The U.S. economy continued to stand out with earnings growth maintained in the low double-digit range, bringing the U.S. markets to “Goldilocks” status, with all economic factors lining up to be just right. Despite the concentration of the U.S. stock market in mega caps and the large exposure to the technology sector, Mackenzie’s report notes that there is still attractive value to be found in the remaining S&P 493 stocks and U.S. small and mid-cap companies.

“While aggregate valuation may lead you to shy away from U.S. equities, we believe that opportunity still exists for capital appreciation with careful stock selection. As we expect interest rates to fall faster in the rest of the world, this should help support multiple expansion and, in turn, generate higher share prices across regions, including Canada and Europe. With the support of lower interest rates, cyclicality will be a crucial factor in sector allocation across portfolios, as will adopting a balanced and diversified approach,” Ms. Marks concluded.

To learn more about Mackenzie Investments’ 2025 Market Outlook and additional investible themes including Electrification, Resources, Quantitative Investing and Private Markets to help inform investment decisions in the year ahead, visit: https://www.mackenzieinvestments.com/en/institute/insights/market-outlook

About Mackenzie Investments

Mackenzie Investments (“Mackenzie”) is a Canadian investment management firm with approximately $211.3 billion in assets under management as of October 31, 2024. Mackenzie seeks to create a more invested world by delivering strong investment performance and offering innovative portfolio solutions and related services to more than one million retail and institutional clients through multiple distribution channels. Founded in 1967, it is a global asset manager with offices across Canada as well as in Beijing, Boston, Dublin, Hong Kong and London. Mackenzie is a member of IGM Financial Inc. (TSX: IGM), part of the Power Corporation group of companies and one of Canada’s leading diversified wealth and asset management organizations with approximately $264 billion in total assets under management and advisement as of October 31, 2024. For more information, visit mackenzieinvestments.com

For further information, please contact:

Jaimie Roebuck
647-629-2747
jaimie.roebuck@igmfinancial.com

Kim Tran
Mackenzie Investments (Québec)
514-217-1684
kim.tran@northstrategic.com