2025 is off to a bumpy start. A sign of things to come?

Market recap

• Equity markets slumped this week and have faced some tough sledding to start 2025 amid tariff concerns and rising bond yields.

• The S&P 500 fell 1.9% on the week, with technology, financials and consumer discretionary underperforming.

• The TSX gave back 1.2%, as gains in materials and energy weren’t enough to offset declines across all other sectors.

Equities

Stock markets have been choppy to start the year, with both the S&P 500 and Nasdaq falling on Friday on news of a hotter-than-expected U.S. jobs report. In our view, this volatility is a prelude to what we could see throughout 2025. Markets are trying to figure out what’s important and whether the economy’s trajectory is changing; it’s that uncertainty that is causing these gyrations. There will be both positive and negative data points along the way. But one data point doesn’t make a trend—it’s better to have multiple data points before taking action. That’s why we believe the best way to play this market environment is to stay the course and remain invested. If you try to take the bad days off, you’ll also miss some of the good days. Down days like Friday may be good opportunities to dip back into the market. Looking ahead, it’s likely that both the inflation story and the U.S. Federal Reserve’s (Fed) interest rate decisions will play a big role in the market’s ups and downs. We’ll be closely monitoring labour market news and statements by members of the Fed board—if the numbers are soft, the Fed is likely to be more active in cutting, while if the data is strong, the Fed will have the option of being patient.

Bottom Line: A volatile first two weeks of the year have given us an early glimpse at what 2025 could look like, but we think investors would be wise to stay the course and potentially buy on dips.

Bonds

Over the past several months, the yield on the U.S. 10-year Treasury has steadily risen from a low of around 3.6% in September to 4.7% as of Friday—its highest level since late 2023.¹ In our view, this continuing upward movement is a slight surprise. Last year, the expectation was that yields would come down as interest rates fell, and though the Fed did cut rates, the number of cuts didn’t live up to markets’ hopes. Now, it seems as if investors are being a bit more cautious since expectations are that the Fed will only cut rates once or twice this year—in other words, more conservative expectations about the interest rate outlook have become embedded in yields. That, along with the risk of sticky or rebounding inflation, is what is pushing yields higher than anticipated. While we still expect yields to come down eventually, they’re not likely to drop overnight—it will be a slower ride down than many investors are expecting. Occasionally, there will be a sizable step down, like the one we saw in November and early December. But in general, we expect 10-year yields in the 4.5%-plus range to persist for the immediate future.

Bottom Line: We continue to expect yields to come down, but it may not happen until the second half of the year.

Tariffs

We are less than a week away from Donald Trump’s inauguration, and markets are still weighing how seriously to take his threats of significant tariffs on certain trade partners, including close allies like Canada. There’s no question that Trump has been talking more aggressively about tariffs lately, and investors should take note. We think there’s a real chance there could be more tariffs than many people are expecting. They may not reach the extreme levels that Trump has proposed—a 60% tariff on Chinese goods, for instance. But they’re not likely to be zero, either. Those headline-grabbing numbers are the starting point for negotiations. Even if the numbers come down, we believe Trump is likely to implement some tariffs in order to follow through on his election promise and ensure his credibility in later negotiations—because if he doesn’t start off strong, other world leaders may not take him seriously.

Bottom Line: Trump’s tariffs represent a downside risk to other geographies—one which may not be fully priced in—while the U.S. still stands to be a relative beneficiary.

Positioning

For more insights on market risks and opportunities, explore our 2025 Investment Outlook Centre .

Here’s a sneak peek at the top five themes: