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The bull market continued its run in 2024, with the S&P 500 and NASDAQ indices hitting all-time highs on the wings of megacap technology stocks and a backdrop of cooling inflation, interest rate cuts and a buoyant U.S. economy.

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At the same time, investors continue to be hit with a potentially confusing 24/7 news cycle inundating them with headlines about inflation, interest rates, employment numbers and GDP growth. Given this, BMO Capital Markets chief investment strategist Brian Belski said one lesson investors should take away from 2024 is to focus on the fundamentals and de-emphasize the macroeconomic picture.

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“Stop being macro and focus on stocks. The stock market is a market of stocks. The Canadian market is one of value and cyclicality and it affords a lot of great companies that are not energy, not gold and not financials,” he said.

For instance, Canadian bank stocks rallied in 2024 after a challenging year in 2023 when they faced higher interest rates, increased loan loss provisions, high household debt, U.S. bank failures, and fears of an impending recession. Despite forecasts and speculation dominating the news, Belski said investors should “stop with the fear.”

“I can’t tell you a year ago how many calls we were getting [saying], ‘The banks are going bankrupt,’” he said. “The banks are hitting new highs right now.

“Avoid the headlines, don’t be macro; be a fundamental stock picker.”

Big moves on stock prices, both higher and lower, based on earnings reports also reinforce the importance of understanding market positioning in certain stocks — who is buying and selling, and how much they own, said Rob Cavallo, senior portfolio manager at RBC Global Asset Management.

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“It’s not just fundamental setup, it’s really, who owns it? Where are the key metrics, and how could the stock squeeze [move] on an event in one direction or another? It’s just been magnified this year and over the last few quarters in particular,” he said.

Cavallo pointed, for example, to U.S. chipmaker Broadcom Inc., which cracked a trillion-dollar market capitalization (its value traded on the stock market) and saw its stock price soar 38 per cent over two trading days after its latest earnings release came in slightly above analysts’ expectations on Dec. 12.

In the past few years, investors have jumped on the broader technology sector, and especially companies involved in supporting artificial intelligence advances.

“This earnings season in the tech, media, and telecom sectors, we’ve had the highest percentage of companies with absolute moves on earnings releases, greater than 10 per cent, than we’ve had in 10 years,” he said. “We’ve seen almost 40 per cent of companies move in one direction, more than 10 per cent, on an earnings release.”

Fundamentals such as earnings growth, financial strength, and competitive advantages can help investors understand the direction of a stock over the long term, but positioning can help investors understand why a stock moves up or down on a one to two quarter basis, Cavallo said.

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“It’s very valuable in this market to marry those two approaches together,” he said.

The S&P 500’s strong returns are largely driven by the so-called Magnificent Seven stocks — Apple Inc., Nvidia Corp., Microsoft Corp., Amazon.com Inc., Alphabet Inc., Tesla Inc. and Meta Platforms Inc. With a combined market capitalization of about $18 trillion as of December 2024, they account for one-third of the S&P 500’s total market capitalization. These stocks have a high average trailing price-to-earnings ratio of 52.4. A high P/E ratio can indicate that a stock is overvalued, though it can also mean investors believe the company has strong fundamentals and the stock has room to rise.

“We’ve almost gotten into a market where valuation doesn’t matter,” said Rebecca Teltscher, portfolio manager at Newhaven Asset Management. “You could invest in Nvidia, which has traded at 100 times earnings, and still do well. It’s still done well this year. That only works until it doesn’t. At the end of the day, valuations do matter, even though this market doesn’t necessarily care about that.”

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She added, “When the market does come back to reality, no one’s going to want to pay 35 times earnings or 50 times earnings for something. We’ve seen this, the stocks that get hit the hardest are the ones that are overvalued to begin with.”

A good indication of what will happen to the market when a recession hits happened on Aug. 5, when U.S. recession fears triggered a global market selloff, Teltscher said. While the downturn was short-lived and markets rebounded, the Magnificent Seven lost a combined US$653 billion in market capitalization on Aug. 5.

“Valuation does matter. And in a market where everything is doing well, I think people forget that because they just buy blindly,” she said. “But once we start seeing more volatility, I think we’re going to see that valuations matter. It’s important to do your due diligence when you’re buying stocks and make sure you don’t overpay for them.”

While nobody knows what is going to happen to the stock market in 2025, investors shouldn’t fear volatility, said Paul Harris, partner and portfolio manager at Harris Douglas.

“As an investor, people have to remember that volatility is your friend. It is not your enemy — it is your friend,” he said. “And when volatility happens, if you have a long-term view of the stock market, it’s the greatest thing that can ever happen to you.”

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Investors can take advantage of volatility by taking the time to research good businesses and buying stocks or index funds during downturns, Harris said. Historically, the stock market has gone up more than it has gone down, and time is on investors’ side, Harris said, as long as they prioritize saving and investing, and focus on time in the market, not timing the market.

“Buy great companies and keep them for the long term. When the stock market gives you volatility, take advantage of it, don’t run away from it,” he said. “Take advantage of the volatility the stock market offers you because that’s the chance where you will get to buy something really cheap that you like.”

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