Investment Insights & Market Outlook

View the complete 2025 Market Outlook: Investment Insights & Market Outlook.

Each of the last five years has been exceptional in its own way. The pandemic shock and the massive, coordinated policy response took centre stage in 2020 and 2021. In 2022, the inflation shock that accompanied the world’s reopening created an extremely difficult year for investors, with both the bond market and equities posting double-digit negative returns. The first part of 2023 looked a lot like 2022, but inflation normalization and hopes of rate cuts ultimately led to a late rally for risk assets. This would set the table nicely for 2024, which—despite the geopolitical turmoil and uncertainty regarding the timing and extent of monetary policy loosening—will be remembered as an exceptional year for nearly all asset classes across most geographies. It is important to emphasize that markets rarely produce yearly returns above 20% or 30% for broad asset classes. Those type of returns should lower our expectations for subsequent outcomes. Valuations are now high in general (and stretched in some pockets), a portion of monetary policy normalization is now behind us, and credit spreads are tight. Each of these elements acts as a drag on our long-term capital market expectations.

Valuations—whether you look at P/E, Shiller P/E, or other valuation metrics—have a clear impact on markets, but only over relatively long horizons. High valuations today indicate that long-term market returns will be lower than in the recent past. However, here is an important twist: valuations have very little explanatory power, if any, over short horizons. Short-term market movements are mainly driven by investor flows, overall sentiment, and momentum.

The uncomfortable truth is that far more money has been lost trying to time market tops or sitting on the sidelines than by simply riding market cycles. To efficiently time the market, one must exit at the right time, resist the urge to re-enter too quickly, and finally identify a good re-entry point. This is typically challenging because the ideal re-entry point often occurs in a difficult, risk-off environment. Most investors ultimately stay on the sidelines for too long and, in many cases, re-enter at a higher level than where they exited.

At CI GAM, our investment philosophy is built on research, portfolio construction, and risk management. Our objective is to produce repeatable outcomes by embracing uncertainty rather than pretending we know things that effectively no one knows. Over the long run, economic growth, demographics, earnings, and valuations have proven to offer reliable forecasting power. Therefore, we anchor our decision-making on the long-term capital market assumptions outlined in this document. We also take more tactical positions but always in a risk-controlled manner. As we enter 2025, a more immediate challenge is the heightened level of market concentration and how momentum-driven markets have become. These two issues tend to feed off each other, as momentum rallies often end abruptly. Furthermore, while we expect Trump to deploy his pro-growth agenda, much of it is likely already reflected in current market levels. Hard negotiations, backed by the threat of a tariff war, are also expected to create periods of uncertainty. We therefore expect market volatility to increase from this point, but still see multiple pockets of opportunity. Expanding the diversification of portfolios by shifting away from pockets of high concentration—whether by geography, sector, or individual securities—looks particularly appealing. We hope you find this document useful and insightful. It serves as the foundation of most of our strategic asset allocation decisions and provides significant value to our internal investment processes. We also hope it can help you understand where the risk and opportunities lie in today’s complex environment.

EXHIBIT 1: RANGE OF CALENDAR YEAR RETURNS (2004-2024)

Source: Morningstar Research Inc., as of December 31, 2024. Canadian Equity: S&P/TSX Composite TR, U.S. Equity: S&P 500 TR USD, Euro Area Equity: MSCI EMU GR LCL, U.K. Equities: FTSE 100 TR GBP, Japan Equity: MSCI Japan GR LCL, DM Equity: MSCI World GR LCL, EM Equity: MSCI EM GR LCL, U.S. Small Cap: Russell 2000 TR USD, Canadian Bonds: FTSE Canada Universe Bond Index, Global Bonds: Bloomberg Global Agg Bond TR USD, High Yield: ICE BofA U.S. High Yield TR USD, Gold (Spot): S&P GSCI Gold Spot Index. All returns in local currency, unless otherwise specified. *Historical Range shows the range of minimum and maximum calendar year returns from 2004 to 2024