Seasonally, the fourth quarter has historically been the most turbulent period for the stock market, and the second half of 2024 is shaping up to be volatile with both headwinds and tailwinds on the horizon. The recent surprise 50 basis point rate cut by the U.S. Federal Reserve (only 25 basis points were widely expected) is expected to provide a boost to the market. According to Ned Davis Research, the S&P 500 has historically posted an average return of 15% in the 12 months following a rate cut. The rate cut has also led to a drop in the U.S. 10-year bond yield to 3.7%, down from 4.4% in July. This has had a direct impact on housing activity, as the 30-year U.S. mortgage rate has fallen from 7% in July to 6.2%. The ripple effects extend not only to homebuilders, renovators, and consumer durables companies (ITB – NYSE, $126.37) but also to consumer goods sectors such as automotive and electronics (XLY – NYSE, $197.87).
Stocks & Rate Cuts (S&P 500 Forward Returns Post Rate Cut)

Many economic prognosticators are increasingly predicting a soft landing for the U.S. economy, with inflation and wage growth easing over the past several quarters. In August 2024, the Consumer Price Index (CPI) showed a year-over-year increase of 3.4%, down from 4.1% earlier in the year, indicating that inflationary pressures are continuing to moderate. Additionally, wage growth has slowed, with the latest data from the Bureau of Labor Statistics showing a year-over-year wage increase of 4.3%, down from 5.5% at the start of 2024. In fact, 79% of global fund managers surveyed by Bank of America expect a soft landing in the next 12 months. The U.S. Federal Reserve, which has repeatedly emphasized its “data-dependency” approach, has signaled that the time for easing has arrived. This economic “Goldilocks” scenario has driven a rotation in the stock market away from high-flying technology stocks toward industrials and defensive stocks, fostering broader market participation across sectors.
While economic momentum and price trends influence the market’s direction, it is ultimately valuations that determine the magnitude of market moves. According to FactSet, analysts are projecting earnings growth of 15.2% and revenue growth of 5.9% for 2025. The S&P 500 is currently trading at a forward P/E ratio of 21.4, well above the long-term average of 16.4 since 1990. This suggests that much of the anticipated earnings growth is already reflected in stock prices. The key question is whether earnings growth will outpace forecasts, potentially driven by improvements in operating margins, cost reductions, and new product lines, particularly through the adoption of artificial intelligence (AI).
We also cannot ignore the potential impact of U.S. election results on the stock market. While Trump’s policies were perceived as business-friendly, particularly with reduced regulatory oversight and lower taxes, these gains were largely offset by trade wars with China and tariffs imposed on Canada and Mexico, the U.S.’s largest trading partners. Research from TaxFoundation.org found that the Trump administration’s tariff war with China amounted to a $80 billion tax increase. Biden’s subsequent tariff hikes on Chinese semiconductors and electric vehicles in May 2024 added another $3.6 billion in tax increases. Combined, the organization estimates that Trump-Biden tariffs will reduce U.S. GDP by 0.2%. These trade policies have been inflationary (not through money supply but by raising price levels) and are projected to reduce U.S. employment by 142,000 jobs.
**What about the Great White North?**
The U.S. and Canadian economies, along with their stock markets, are inextricably linked. The U.S. is Canada’s largest trading partner, with about 75% of Canadian exports heading south, while China is a distant second at 4.5%. According to the World Bank, about one-third of Canada’s GDP is driven by exports. Our economic fortunes are tied together. On the domestic front, the Bank of Canada initiated rate cuts in June 2024, opting for more modest 25 basis point increments, resulting in a cumulative reduction of 75 basis points, bringing rates to 4.75%. The Bank of Canada has indicated further rate cuts may be on the horizon as we head into October. Borrowing costs have eased, with the 10-year Canadian bond yield now at 2.9%, down from 3.75% at the end of May 2024.
We are increasingly seeing Canadian stocks more favorably than in recent years. Rising commodity prices—particularly in energy, mining, and agriculture—combined with falling interest rates, could provide a strong tailwind for Canadian equities. For example, oil prices have recently rebounded, and natural gas prices are also rising due to geopolitical tensions and supply constraints. These developments benefit Canada’s resource-rich economy, where energy and materials make up approximately 30% of the TSX Composite Index. If commodity prices continue to rise and borrowing costs decrease, sectors like financials, real estate, and consumer goods are poised to benefit from increased demand and lower debt servicing costs.
Moreover, with Canada’s election on the horizon, political uncertainty remains, but most political commentators predict a significant loss for Trudeau’s Liberal Party. However, economic and financial policies are yet to be fully outlined by the contending parties. The outcome of the election could introduce new fiscal policies that either strengthen or hinder Canada’s economic growth prospects in the coming years.
Despite the uncertainty and volatility ahead, our experience has consistently shown that one strategy prevails—prudent risk management through active asset allocation. We mitigate economic and market risk through proactive portfolio rebalancing and disciplined asset allocation. This tactical management style has served us well through every market cycle, both at peaks and troughs.