Markets brace for upheaval as Canada enters 2025 with rising valuations and currency challenges

As 2025 begins, the S&P 500's price-to-earnings ratio has risen to 38, up from 32 last year. This high valuation level raises concerns for long-term investors, as historical data suggests negative returns often follow such peaks. The Canadian dollar has recently dropped below 70 US cents, increasing costs for Canadians traveling to the U.S. However, Canadian investors benefited from a strong S&P 500 performance in 2024, with returns reaching 37 percent when converted to Canadian dollars. Interest in guaranteed investment certificates (GICs) is declining as rates fall, with an estimated $200 billion to $300 billion in GIC balances expected to shift to high-quality dividend-paying stocks. Additionally, private markets are gaining importance, with expectations for significant growth in this sector by 2029.