Good Afternoon,
After a solid November return in the markets, December saw a pullback as a Santa Clause rally unfortunately didn’t materialize. Apparently, Santa felt we didn’t need any more after an overall solid year.
Before jumping to the December monthly update, I wanted to provide one more reminder on TFSA and RRSP contribution amounts for 2025.
The 2025 TFSA contribution limit is $7,000. This matches the limit in 2024. Remember, any unused contribution room gets carried forward. If you have never contributed to a TFSA and were at least 18 years old in 2009, your lifetime contribution limit will be $102,000 in 2025.
The 2025 RRSP contribution limit is 18% of the previous year’s earned income, up to the maximum limit of $32,490. Pension adjustments affect your contribution total. But any unused contribution room gets carried forward.
To confirm your TFSA and RRSP contribution limits, I recommend contacting CRA either online or over the phone. Contribution limits will be updated and posted online in early 2025.
In December, the S&P500 was down -2.50%, the Nasdaq was up 0.5%, the Dow Jones Industrial Average was down -5.27%, the S&P Mid Cap 600 was down -7.29%
The Bank of Canada made another 0.50% interest rate cut in December bringing the overnight rate to 3.25%. The cut in Canada came after GDP grew by an annualized 1%, which is lower than expected. The BoC cuts have unfortunately had a negative impact on the value of the Canadian dollar. The US Federal Reserve made a 0.25% rate cut in December bringing their rate range to 4.25% to 4.50%. As a reminder, as overnight rates come down, the rates charged on things like variable mortgages, cars, and lines of credit also come down, which is always a nice benefit to individuals.
Looking back on 2024, mega-cap stocks drove the majority of the growth in the US; with that growth a new acronym has emerged as well. The top stocks went from the Magnificent 7 to the Magnificent 8 with the addition of Broadcom, which rose 110% and reached the trillion dollar market cap mark. The Mag 8 or the BATMAAN (Broadcom, Apple, Tesla, Microsoft, Meta, Amazon, Alphabet, and Nvidia) stocks accounted for a whopping 63% of the S&P500’s total 25% return for 2024.
Without the Mag 8 stocks, the S&P500 would have been up just over 10% for 2024.
The average return amongst the S&P500 constituents was 12.8% for 2024. What is also interesting is the average return for the US Financial Sector was at the top at 25%.
With so much of the return in the US being from 8 names, this can pose significant concentration risk; should any of those names go down, there can be an outsized negative effect on the market as a whole. This is why staying diversified to mitigate that risk and smooth out long-term returns is of the utmost importance.
Overall, 2024 was a good year for the markets. Looking forward there may be some volatility stemming from things like the incoming Trump presidency. Only time will tell how things shake out. But we are looking forward to what the new year brings and working with you to help you reach your investment goals.
