December Market Insights: THE BEST OF TIMES, THE WORST OF TIMES: A Year in Review

December 4, 2024

December Market Insights: A Year In Review

The Best of Times, the Worst of Times

“It was the best of times; it was the worst of times…” – Charles Dickens

As we reflect on the market journey from late 2023 to the present and look ahead to 2025, the resilience and dynamism of the global economy stand out as defining characteristics. Throughout this period, a bullish outlook has been maintained, often swimming against the tide of mainstream opinion. This perspective has proven valuable as markets navigated through economic and political terrains, embodying the Dickensian sentiment of the best, and worst of times.

The 2023 Market Forecast: A Pause that Refreshes

At the dawn of 2023, we predicted a year marked by the return of data dependency and the continuation of the secular bull market for equities. Drawing parallels to the 1994-95 market roadmap, we suggested that the U.S. Federal Reserve would not tighten to the point of causing a global financial crisis. An ambitious S&P 500 target of 4,800 was set for 2023, emphasizing that the 2022-23 episode was merely a pause that would refresh the secular bull market.

This view stood in stark contrast to many analysts predicting prolonged economic difficulties. The accuracy of this forecast was validated as the year unfolded, with markets demonstrating remarkable resilience in the face of ongoing economic uncertainties. This resilience was underpinned by adaptive corporate strategies, technological advancements, and the gradual normalization of pandemic supply chain disruptions.

The market’s ability to weather geopolitical storms, including ongoing tensions between major global powers and regional conflicts, further underscored its robustness. Investors who maintained faith in the market’s long-term growth potential were rewarded, while those who succumbed to pessimism missed out on significant gains.

Challenging the Permanent Inflation Narrative

Throughout 2023 and into 2024, we consistently challenged the prevailing narrative that inflation would remain persistently high. Our view held that inflationary pressures were largely transitory, driven by pandemic related supply chain disruptions and extraordinary fiscal stimulus. As these factors normalized, we argued that inflationary pressures would naturally abate.

A key insight that set our analysis apart was the recognition of seasonal patterns in inflation data. We disagreed with the Federal Reserve’s interpretation of the first quarter inflation pickup as a sign of reigniting inflation. Instead, we noted that inflation frequently follows a seasonal pattern, peaking in the first quarter as one-time yearly price increases are implemented.

This understanding of seasonal patterns proved crucial for investors and policymakers alike. It allowed for a more nuanced interpretation of economic data, preventing knee-jerk reactions to short-term fluctuations that could have led to misguided policy decisions or investment choices.

Another critical factor in our inflation analysis was the recognition that the Consumer Price Index (CPI) is now primarily driven by lagging variable shelter costs. This insight helped explain the persistence of certain inflationary measures even as other economic indicators pointed towards disinflation.

The shelter component of CPI, which includes rent and owners’ equivalent rent, tends to lag real-time changes in the housing market by several months. This lag created a situation where headline inflation figures remained elevated even as other price pressures eased. Understanding this dynamic provided a more accurate picture of the underlying economic inflationary trends, allowing for better-informed decision-making.

The Political Landscape and Economic Policy

As the 2024 presidential election approached, we advised investors to position themselves for a potential Donald Trump victory. This recommendation was based on a clear-eyed analysis of market implications, recognizing that a second Trump administration would likely pursue policies favourable to certain sectors of the economy and potentially accelerate deregulation efforts.

The anticipation of a Trump victory led to strategic positioning in sectors expected to benefit from his policies, such as energy, finance, and defense. This foresight proved valuable as these sectors saw significant gains in the aftermath and market reaction to Trump’s win. With the Republicans in control, an era of deregulation and innovation is upon us.

Following the U.S. presidential election, analysis shifted to the implications of the “American System 2.0” economic agenda. This modern iteration of historical economic policies emphasizes protectionism, government efficiency, deregulation, and tax reform. While Trump’s policies were seen as pro-growth, they were not considered as radical as the Modern Monetary Theory (MMT) experiments pursued under the Biden administration.

The Trump administration’s focus on government efficiency and deregulation is expected to have a deflationary impact, potentially easing some of the inflationary pressures that have persisted in certain sectors of the economy. This approach, combined with proposed tax cuts, could stimulate economic growth while simultaneously addressing concerns about government spending and inflation.

The Energy Revolution and Deflationary Pressures

With Trump’s “Drill Baby Drill” policy and data pointing to a demand slowdown, we expect the Organization of the Petroleum Exporting Countries (OPEC) to defend market share in 2025, much as it did in 2014. This leads to our base case of a US$50 target for oil in 2025, reinforcing deflationary pressures.

The energy sector is poised for significant changes under the new administration. The push for increased domestic oil and gas production is expected to not only impact energy prices but also have broader implications for U.S. energy independence and geopolitical positioning. However, this policy direction also raises questions about long-term sustainability and environmental impacts, creating a complex landscape for investors in the energy sector.

In a world of excess capacity, markets left to their own devices tend to be deflationary. We anticipate companies cutting prices to defend market share in 2025, adding to deflationary pressures. Furthermore, the focus on government efficiency by figures like Trump and Elon Musk is inherently deflationary.

This deflationary environment presents both challenges and opportunities. While lower prices can benefit consumers, they can also squeeze corporate profits and potentially lead to wage stagnation. Investors will need to carefully navigate this landscape, potentially favouring companies with strong market positions and efficient operations that can maintain profitability even in a deflationary environment.

The Bullish Call on Bitcoin and Gold

My July 2024 Market Insights included a notable bullish call on bitcoin and gold. As of November 11, 2024, market data supported this bullish outlook, with bitcoin trading at US$81,750 and gold futures priced at US$2,659.50, both near their year-to-date highs. This strong performance underscores the ongoing demand for alternative assets in an uncertain economic environment. These assets have increasingly been seen as hedges against both inflationary and deflationary pressures, as well as geopolitical uncertainties. Their rise also reflects a growing distrust in traditional financial systems and a search for assets perceived as being outside of government control.

The crypto landscape underwent significant changes during this period, with increased regulatory scrutiny leading to a shakeout. However, this also paved the way for more robust and compliant crypto businesses to emerge, setting the stage for a more mature and integrated crypto ecosystem in the years to come.

Forecast for 2025 and Beyond

Looking ahead to 2025, we expect continued growth, albeit with some caveats. S&P 500 earnings are projected to rise by 15 per cent, reaching just over US $279.00, and the S&P 500 index could approach 7,000 by late 2025. However, investors are cautioned to be prepared for a potential growth scare in late 2025 into 2026. Innovation, banks and bitcoin are my favourite sectors for 2025.

A key theme for 2025 is the expected divergence between the performance of financial markets and the real economy. While we anticipate risk assets to appreciate, we also expect the real economy to slow down. This dichotomy is largely due to the lagged effects of monetary policy.

We expect the Federal Reserve to continue normalizing interest rates, potentially reaching a target rate of around 2.75 per cent. However, the real economy will still be grappling with the effects of higher rates from previous years. The effective lagged federal funds rate (FFR) is expected to remain around five per cent throughout 2025, acting as a drag on economic growth even as financial markets potentially thrive.

This situation creates a complex environment for investors and policymakers alike. While rising asset prices may create a wealth effect and boost consumer confidence, the underlying economic fundamentals may be less robust. This divergence between financial market performance and real economic conditions is not sustainable in the long term, potentially setting the stage for market corrections or economic adjustments in the future.

By 2025, we believe the Federal Reserve will have largely achieved its dual mandate of price stability and maximum sustainable employment. This achievement could lead to a more neutral stance from the central bank, with less need for aggressive policy actions.

However, achieving these goals doesn’t necessarily translate to smooth sailing for the economy. The lagged effects of previous policy decisions will continue to impact various sectors differently. Moreover, new challenges may emerge, requiring ongoing vigilance and potentially new policy approaches from the Federal Reserve and other economic policymakers.

The Deficit Dilemma and Growth Strategy

The deficit issue remains a critical long-term concern. While expansionary fiscal policies may boost growth in the short term, debt accumulation could limit future policy options and potentially lead to financial instability. Investors and policymakers will need to grapple with these long-term implications even as they navigate the more immediate economic landscape.

There is a historical precedent for addressing such significant debt burdens. The path out may mirror the approach following the Second World War—growing our way out of it. The key lies in ensuring that nominal gross domestic product (GDP) growth outpaces inflation, which in turn exceeds the FFR.

While some respectable voices criticize this approach as “inflating our way out of the mess,” it’s crucial to understand this doesn’t necessarily imply high inflation rates. Rather, it suggests a carefully balanced economic environment where both inflation and nominal GDP growth rates are higher than the FFR. Given the Federal Reserve’s inflation target of two per cent, this strategy inherently requires interest rates to drop below two per cent to be effective. The New York Federal Reserve’s forecast of the natural rate of interest—the rate the FFR should be at—is now below levels seen in the post-Global Financial Crisis era, pointing to the risks of the central bank being too late. Nothing has been fixed.

This approach requires a delicate balance. While moderate inflation can help erode the real value of debt over time, excessive inflation could lead to economic instability and other unintended consequences. The goal is to create an environment where economic growth outpaces both inflation and interest rates, allowing for a gradual reduction in the debt burden relative to the size of the economy. Prominent figures on Wall Street are openly doubting Musk’s ability to achieve his objective of US$2 trillion worth of government cuts. He is forthright that economic pain will ensue. In 2025 we forecast government spending shifting from a tailwind to a headwind for growth.

Several factors are exerting deflationary pressures on the economy, including debt levels, demographic trends, technological innovation, and global excess capacity. These deflationary forces will play a crucial role in shaping the economic landscape and the effectiveness of this growth strategy.

This strategy aligns with our earlier predictions of interest rates bottoming out below two per cent in the mid to late 2026 timeframe. It also underscores the importance of policies that promote sustainable economic growth, as growth will be key to addressing the deficit challenge in the long term.

The AI Revolution and Economic Transformation

The transformative potential of artificial intelligence (AI) on the global economy is a recurring theme. The AI revolution is seen as a double-edged sword—offering unprecedented opportunities for productivity growth and innovation, while simultaneously posing challenges to traditional employment structures and economic models.

As AI continues to advance, its impact on various sectors of the economy is expected to accelerate. This could lead to significant shifts in employment patterns, with some jobs becoming obsolete while new ones are created. The distribution of the benefits of AI-driven productivity gains will be a key economic and political issue, potentially exacerbating existing inequalities if not managed carefully.

The integration of AI into various industries is likely to drive efficiency gains and create new business models. However, it may also lead to increased market concentration as companies that successfully leverage AI gain competitive advantages. Policymakers will need to grapple with how to ensure that the benefits of AI are broadly distributed while still incentivizing innovation and investment in this transformative technology.

Conclusion: Navigating the Path Ahead

As we navigate through 2025 and beyond, it’s clear that the global economy is at a pivotal juncture. The interplay between monetary policy, fiscal decisions, technological advancements, and geopolitical factors will shape the economic landscape in ways that may challenge conventional wisdom.

Successfully navigating this complex environment will require a combination of foresight, flexibility, and a willingness to challenge prevailing narratives when the data suggests a different story. The ability to discern signal from noise, to see beyond short-term fluctuations to longer-term trends, will be more crucial than ever.

As we’ve seen throughout this analysis, from the seasonal patterns of inflation to the lagged effects of monetary policy, understanding these nuances can make all the difference in rendering informed economic and investment decisions. The coming years may indeed be “the best of times” for those who can successfully traverse this complex landscape, and “the worst of times” for those caught unprepared.

With careful analysis, strategic thinking, and a willingness to adapt, we can strive to make the most of the opportunities that lie ahead, while building resilience against the inevitable challenges we will face. As we conclude this economic outlook, it’s worth remembering that in every challenge lies an opportunity, and in every risk, a potential reward. The path ahead may be uncertain, but for those prepared to navigate its twists and turns, it offers the potential for significant growth and prosperity.

Recent Posts

May Market Insights: Mastery and the Terror Premium

Mastery of energy, again

Winston Churchill, as first lord of the Admiralty, tied Britain’s fate to Persian oil. United States President Donald Trump’s war in Iran, centred on Operation Epic Fury, could do the same for the West by removing Iran’s nuclear shadow, resetting oil toward US$60, and finally unlocking a modern peace dividend.

“Mastery itself was the prize of the venture.” Winston Churchill’s 1912–13 case for converting the Royal Navy from coal to oil—enshrined in historian Daniel Yergin’s The Prize: The Epic Quest for Oil, Money, and Power captured the brutal clarity of a great power energy strategy: accept dependence to command the seas. That wager framed the last century. In 2026, as Epic Fury grinds through the Gulf and Brent trades above US$100, the question is no longer whether oil confers mastery, but who holds it: a revolutionary theocracy astride the Strait of Hormuz, or a West intent on stripping the terror and nuclear risk now priced into every barrel out of the energy system—finally collecting a long‑deferred peace dividend.

Churchill’s shift bound Britain’s prosperity to distant wells and narrow waterways, welding energy supply to national survival. He understood that control of energy was not an adjunct to power, it was the metric. In April 2026, with Hormuz contested and Iranian missiles demonstrating reach beyond the Middle East, the same dilemma confronts policymakers and markets. Does the West still want that prize, and what is it prepared to stake to reclaim it from a regime that has spent half a century turning oil, terror, and nuclear brinkmanship into interchangeable tools of coercion? Assume Trump’s campaign does what it is now on course to do: not merely reopen a chokepoint, but neutralize a nascent tactical nuclear threat which, left intact, would hardwire a doomsday premium into global energy prices for a generation.

Iran’s war with the West has done what decades of shocks, embargoes, and “maximum pressure” could not: it has made the hidden tax on energy legible even on a Bloomberg screen. Strip out the terror and nuclear‑risk premiums in a post‑Trump‑Iran settlement, and Brent does not belong north of US$100; it sits much closer to the US$60 level implied by underlying supply and demand and pre‑war bank research. The gap between where oil trades in a world held hostage by a nuclear‑ambitious theocracy at Hormuz and where it would trade if flows were secure and de‑weaponized is more than a volatility surface. It is the unclaimed peace dividend of globalization, the energy market analogue of the windfall that followed the end of the Cold War, when the removal of an existential nuclear standoff released capital, confidence, and capacity back into the real economy.

The choice now facing the West is whether to lock in that outcome. Ending the Cold War removed the Sword of Damocles that had hung over every investment decision for half a century; a successful conclusion to Iran’s nuclear extortion would do something similar for the 21st‑century economy, collapsing a structural risk premium that has quietly taxed households, corporates, and sovereigns alike. The question, as Churchill would have recognized, is whether the West is prepared not just to win on the battlefield but to consolidate that victory into a new era of energy mastery, and to treat the potential verified removal of Iran’s enriched stockpile and fuel‑cycle capabilities as a security gain on the scale of the 1987 Intermediate-Range Nuclear Forces Treaty or the dissolution of the Soviet arsenal.

For Europe, the stakes are not abstract. Iranian missiles and drones have already shown that European Union territory and NATO logistics hubs sit uncomfortably close to the new strike envelope, shattering the illusion that Gulf risk could be quarantined to energy prices alone. The deeper reckoning is with Europe’s own energy strategy. The choice by many Western governments to anchor industrial policy primarily on climate targets while neglecting cheap and secure supply—is now coming home to roost. Prosperity in an artificial intelligence (AI)‑driven economy rests on abundant, reliable energy rather than on cheap consumer imports, echoing Churchill’s insight that mastery of energy is mastery of power. That logic points north as well as east: Canada with its hydrocarbons, hydropower, and critical minerals—looks less like a peripheral supplier and more like a potential resource superpower if it can cut through regulatory thickets and build the infrastructure to deliver secure barrels, electrons, and metals to allied markets.

U.S. hard power, the security backstop European, Canadian, and the United Kingdom economies long treated as a law of nature, now looks more contingent, more politically conditional, and more thinly spread across theatres. One could easily imagine Washington reverting to a post‑First World War stance, turning inward to rebuild its real economy, and no longer willing or able to offer security as a global public good. A successful Trump‑led settlement that removes both the nuclear overhang and the Hormuz chokepoint as instruments of coercion would not only stabilize Atlantic world energy supply but also underwrite a more credible NATO deterrent at lower long‑run cost—replacing the ersatz “peace dividend” of underfunded defence with a genuine one built on reduced threat rather than wishful budgeting.

For investors, a decisive outcome in Iran would not just redraw maps in the Gulf; it would refashion term premia. As the nuclear and terror discounts bleed out of the curve, gilt yields and U.S. Treasuries alike would begin to reflect lower expected inflation and slimmer risk premia rather than recurring energy shocks. Credit spreads-particularly for energy‑intensive sectors and fragile sovereigns—would compress as balance of payments and default risks ease. Equity markets would reprice in turn: structurally lower input costs and a thinner geopolitical risk layer would lift margins in manufacturing, transport, and consumer names, even as oil majors and defence stocks surrender some of their crisis rent. For the Square Mile and Wall Street, the real prize is not another trade on US$120 Brent; it is the re‑rating that comes when a structural doomsday premium is finally taken out of the system and the peace dividend—deferred since the end of the Cold War and repeatedly eroded by Iran—at last starts to be paid in cash flows rather than communiqués.

Churchill’s ghost at Hormuz

On the first day of April 2026, as Brent traded just above US$100, the world was relearning what Churchill meant when he called mastery the prize. As first lord of the Admiralty, he forced the Royal Navy off domestic coal and onto Persian oil, then secured that lifeblood by buying control of Anglo‑Persian Oil. He knew the bargain: oil conferred speed and reach, but at the price of dependence on distant fields and fragile sea lanes. Hence his warning to Parliament in 1913 that “on no one quality, on no one process, on no one country, on no one route, and on no one field must we be dependent” and his insistence that safety and certainty in oil lay “in variety, and in variety alone.”

That decision created the modern energy system and placed Iran at its centre. Four decades later, as prime minister, Churchill confronted the second act of his own gamble when Iran’s prime minister Mohammad Mossadegh nationalized Anglo‑Iranian Oil Company’s assets. The 1953 coup that restored the Shah was less a morality play than a confirmation that control over Iranian oil would be contested by empires, nationalists, and, eventually, revolutionaries. Churchill’s instinct to secure supply at the source and to dominate the sea lanes that connected it to Britain established a strategic architecture with a simple premise: mastery of energy flows was indistinguishable from mastery of global power.

The twist came in 1979, when that architecture was seized by those it had previously constrained. The Iranian Revolution toppled the Shah and installed Ayatollah Khomeini’s theocracy—a regime that viewed the U.S. as the “Great Satan,” embraced terrorism as statecraft, and sat astride the Strait of Hormuz. Oil workers struck, production collapsed, and prices more than doubled. The world discovered that the geographic fulcrum Churchill had chosen could just as easily be pulled by a revolutionary fist. From that moment, the markets began to price an Iran terror premium. It was distinct from OPEC’s cartel pricing power or conventional war risk. It recognized that a state sponsor of terrorism—with a web of proxies and control over the narrow channel through which roughly a fifth of seaborne oil must pass—would periodically weaponize that position. Each tanker attack in the 1980s “Tanker War,” each Hezbollah bombing, each missile launched at a Gulf facility added a sliver to that premium. Over time, slivers hardened into a slab.

Churchill’s maxim was inverted. Variety still existed geologically, with new barrels from the North Sea, Alaska, and deepwater, but strategically the system was again anchored on a single actor most willing to turn energy into a cudgel. Where Churchill had sought safety through variety, the world lived with uncertainty concentrated in one revolutionary capital. And where he had seen mastery as the prize of bold, deliberate ventures, mastery of energy risk quietly migrated to a regime that treated terror as an operating model.

How terror became a line item

The terror premium is no longer an academic calculation; it is a visible spread. In calmer phases of the cycle, geopolitical risk barely nudges price forecasts. In crisis, as in early 2026, the gap between pre‑war expectations for oil and the levels seen when Hormuz is threatened yawns wider, and futures curves kink as traders try to price the possibility of disruption. Even if part of that is fear and temporality, the underlying message is obvious. There is a structural surcharge on every barrel to account for the probability that Tehran or one of its proxies will, at some point, take terrorist action.

That surcharge has a history. The 1973–74 oil embargo revealed how quickly geopolitics could quadruple prices, but Iran was then still an ally. The true discontinuity came with the 1979 revolution and the Iran‑Iraq War. The Tanker War saw mines in the Gulf, neutral shipping attacked, and U.S. naval forces drawn in to reflag and escort tankers. Washington’s 1984 decision to designate Iran a state sponsor of terrorism, off the back of Hezbollah’s bombing of U.S. Marines in Beirut, made explicit what markets had intuited: one of the central suppliers to the system was also its most committed saboteur.

Highlights from the 2026 Spring Economic Update

On April 28, 2026, Finance and National Revenue Minister François-Philippe Champagne released the 2026
Spring Economic Update (the Update). This was the first spring economic update after the federal budget was
moved to the fall in 2025. In the absence of a federal budget earlier this year and with the recent shift to a
majority government, Canadians have been awaiting clear direction on the federal government’s policy
focus and anticipated initiatives. Overall, the Update introduces relatively little that had not been previously
announced, while showing an improved fiscal outlook, with the projected deficit declining despite $37.5 billion
in net new spending.

April Market Insights: Bretton Woods 2.0, the New Great Game, and Trump

U.S. President Donald Trump’s second term is not just another burst of tariff theatre; it is the opening move in a new great game over energy, artificial intelligence (AI), and money. By neutralizing Iran and Venezuela, squeezing Cuba, binding Canada, and courting Russia, Washington is trying to re-anchor oil in U.S. dollars and push BRICS’ [1] monetary ambitions to the margins. Layered on top are digital rails—dollar-backed stablecoins, tokenized Treasuries, gold, and even a strategic bitcoin reserve—designed to harden, not retire, King Dollar. If it works, Bretton Woods 2.0 will arrive not as a conference, but as the unannounced sequel to a crisis-ridden decade, with the U.S. once again writing the rules.

Investment Insights Spring 2026

The Shifting (Global) Order We are living through a period of shifting order. Global alliances

March Market Insights: There is no Bronze Medal

“There’s only two cultures that are going to win in the next year. It’s going to be us or China.” The subtext of Palantir CEO Alex Karp’s widely cited speech from late 2025 sounds like tech‑bro theatre until you reflect on it. In artificial intelligence, there is no bronze medal. There will be a hegemon and a runner‑up. Everyone else will be a client.

Markets are not pricing that reality. Investors still treat the AI build-out as marginal cloud spend or another overhyped software cycle. They debate whether Big Tech is “exhausting its available capital” or whether capex “must mean revert,” as if infrastructure were optional and competition courteous. They are using valuation models from the wrong century for the wrong game.

AI is not an app store. It is a weapon system—and the operating system of the next industrial era. The capital going into it is not a bubble. It is rearmament.

The information contained herein has been provided for information purposes only. The information has been drawn from sources believed to be reliable. Graphs, charts and other numbers are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. This does not constitute a recommendation or solicitation to buy or sell securities of any kind. Market conditions may change which may impact the information contained in this document.  Wellington-Altus Private Wealth Inc. (WAPW) does not guarantee the accuracy or completeness of the information contained herein, nor does WAPW assume any liability for any loss that may result from the reliance by any person upon any such information or opinions.  Before acting on any of the above, please contact your financial advisor.