At the end of 2014, global markets appeared to be at a crossroad. With the convergence of multiple economic and geopolitical events, the stage is now set for changes in 2015 and beyond. We turned to David Rosenberg, Chief Economist & Strategist at Gluskin Sheff & Associates; Bill Webb, Executive Vice-President & Chief Investment Officer at Gluskin Sheff & Associates; Eric Lascelles, Chief Economist at RBC Global Asset Management; and Ben Rabidoux, President of North Cove Advisors for their thoughts on what the future has in store.

Now that Republicans are in control of both the U.S. Senate and House, how do you foresee markets being affected by a potentially significant shift in U.S. government policies? How do you expect European markets to fare as the European Central Bank continues to struggle?

Eric Lascelles: The political dynamic in the United States has not changed drastically. The government was divided before the election, and it remains split afterwards, only with a Republican tilt instead of a Democrat one. Neither party is in a position to legislate its agenda freely. Nevertheless, the odds have improved for free-trade deals and tax reform. History shows that when one party holds the White House, and Congress is in the hands of the other, a surprising amount of good legislation can be passed. And historically, the third year of the U.S. presidential election cycle has tended to be a good one for the stock market, and this may turn out to be the case in 2015 also.

European markets have been much more mixed than those in the United States due to wobbling economic growth, low inflation, and political risk. The European Central Bank (“ECB”) has remained frustratingly incremental in its approach. Fortunately, European economic prospects are arguably improving. The combination of a weaker euro, low bond yields, and lower oil prices is set to deliver fairly powerful economic stimulus. The fact that Europe has now successfully stress-tested its banks argues that an important impediment to credit growth has been removed. Accordingly, we expect better European growth and the avoidance of persistent deflation. The political risks may also be smaller than they look. In turn, when combined with attractive valuations, European equities could start to perform well again through 2015.

David Rosenberg: The impact of the U.S. mid- term elections will be driven by two outcomes: first, how the President will interpret the election results and whether this pushes him towards the centre; and second, how Republicans will interpret their success, considering that voter turnout was the lowest since 1942, which could possibly indicate political weaker support than meets the eye. It remains to be seen whether politicians in Washington will be able to take a more conciliatory stance and resolve various issues, especially tax reform. Although the general consensus is that lame-duck presidents don’t get a lot done, there could be upside surprises in store, similar to those in the last few months of Bill Clinton’s presidency when he managed to accomplish a fair amount.

In Europe, the markets are trading at very steep discounts, and the ECB needs to begin moving much more aggressively than it has before. Mario Draghi, President of the ECB, will likely move toward outright quantitative easing, which is necessary, especially in the aftermath of what the Japanese have already done. We will likely see some significant shifts in fiscal and monetary policy in Europe and a much weaker euro in the process.

The U.S. Federal Reserve finally ended its third round of quantitative easing at the end of October 2014. Have global markets moved as you expected since then? What do you expect for various markets as we move forward into 2015?

EL: Global markets reacted adversely to the end of the U.S. Federal Reserve’s (the “Fed’s”) quantitative easing (“QE”) program when the possibility was first raised in mid 2013, but they have since remained mostly calm about the end of QE and the possibility of interest rate hikes in 2015. Markets have already priced in a reasonable (if slightly too cautious) amount of monetary tightening. We view rate hikes more as an endorsement of better growth than as an impediment to it. Increasingly normal valuations and the uncertainty surrounding the Fed’s actions may impose a limit on stock market gains, but earnings should continue to provide support. The oil price correction is inflicting pain on oil producers and their brethren, but it has ultimately overshot.

The emerging market outlook is quite mixed, with the best prospects set for the teetotallers that manage to steer clear of geopolitical intrigue, lack a resource orientation, have avoided credit excesses, and are actively pursuing structural reforms. It could be a bumpy ride for some, especially with Fed hikes nearing, but attractive equity valuations should provide ample compensation.

Bill Webb: Actions surrounding QE have been well documented and have been anticipated. The end of QE was not a big surprise, and markets moved as expected. Relative growth rates in different economies around the world will be the main concern in the coming year. The United States is the strongest economy at the moment, and recovery there seems to be the most robust. In the United States, the biggest event is the timing of the first interest rate increases. The markets right now are anticipating and pricing in mid- 2015 interest rate hikes, but it’s a moving target, depending on economic data and Fed actions.

China’s economy is still growing, but there are concerns that growth rates will slow. Expectations are that China won’t have a hard landing, but gross domestic product growth will decelerate to seven percent or lower, which is the lower end of the government’s target. This is part of a decades-long transition to an economy that’s driven by Chinese domestic consumers rather than by capital spending and exports markets. This is a necessary transition for the country, and it is already under way.

The unemployment rate has fallen, and job data is strengthening in both the United States and Canada. Do you believe that the job market has finally recovered after years of weakness, or are labour market conditions not as rosy as the numbers seem to indicate?

EL: North American job markets have made huge strides. Most of Canada’s hiring strength came in the immediate aftermath of the financial crisis, with a more moderate trend recently. In contrast, the U.S. recovery started slowly but has built remarkable momentum. Both countries now have unemployment rates in the normal range, historically. This arguably overstates their true health due to the number of discouraged workers and under-utilized part-timers who do not appear in the figures. Nevertheless, it has been a striking improvement, and labour markets are beginning to generate upward wage pressures. Looking forward, Canada may struggle to sustain its pace of job creation if oil prices remain at these levels.

DR: The U.S. labour market has gone through different stages in the recovery process. Although it has recovered over the last several years, it is not quite operating at full speed yet, and there are definitely some areas where we can see improvement, one of the keys being a turnaround in the multi-year low participation rate. Wage growth is beginning, and once there is visible and sustained upturn in labour income, we will see a sign of a more self-sustaining recovery, resulting in Fed action to remove its zero interest rate policy.

Ben Rabidoux: The Canadian labour market has not performed particularly well in 2014, upon closer examination of the numbers. Over the last several months, wage growth has been unimpressive, and job growth has been effectively flat when excluding Alberta and Saskatchewan, and actual hours worked are flat year over year. Outside of a recession, these numbers are as bad as they could be. Finally, too much of Canada’s economic growth is attributable to the housing boom, and this lack of diversification in the economy is unsustainable in the long run.

On the other hand, the U.S. economy is much more diverse and much less dependent on housing. The U.S. economy is gaining traction and looks set to continue strengthening in the next year. Housing starts in the United States have strong potential to rise, in contrast to Canada, where overbuilding is a concern, and there is a lot of room to fall. Loosening credit conditions in the United States will drive a significant amount of consumption and investment into residential real estate in the coming year.

Over the past year, there has been increasing dispersion in the growth rates of average property values across Canada. What do you expect the trend in housing prices to be, moving forward?

BR: House price appreciation will start slowing nationally by the second quarter of 2015. Credit trends in Canada are as good as they will get right now unless interest rates drop or mortgage rules are again loosened. The big theme for 2015 is that credit trends will move in the opposite direction for the first time since the recession. Nearly 90 percent of the improvement in headline mortgage arrears since 2012 has been driven by an improvement in arrears in Alberta. That looks unlikely to persist. The dispersion in house price increases and the general strength in the housing market across the country are the largest there have been in 20 years. Housing markets in Quebec, Atlantic Canada, Manitoba, and Saskatchewan will likely be weak in 2015, while in Southern Ontario the housing market is expected to remain in good shape for at least the first half of the year due to a lack of supply in major markets and a potential boost to discretionary income from falling gas prices. The outlook for British Columbia is neutral. The housing market there looks extremely vulnerable to a downturn, but it’s difficult to see a catalyst for early 2015. We saw sharp deterioration in Calgary’s housing market at the end of 2014, with sales down and supply up very sharply, albeit off a very low base. That sets things up for an interesting spring market. Absent a sharp bounce in oil prices, we could see falling house prices in Alberta by the summer.

Quebec and Atlantic Canada are particularly vulnerable. Their housing markets are starting to weaken as they are starting to see the largest supply/demand imbalances in 20 years. In Quebec, outside the public sector and the construction industry, there has been virtually no job creation since 2011. Similarly, Manitoba and Saskatchewan are highly levered to construction and the housing market. Inventories, the number of houses under construction, and the amount of unsold developer inventory are all at all-time highs. A decade ago, four percent of the labour market in Manitoba and Saskatchewan was employed in construction; today it’s over eight percent, an indication of over-reliance on housing. In contrast, the housing market in Southern Ontario is very strong, with 10-year lows in terms of months of inventory (active listings/sales). House prices in Alberta are arguably not as overvalued as elsewhere in the country. Since 2009, some cities, including Calgary, have already experienced a meaningful housing correction in which prices fell 15 percent, thus letting steam out of the markets.

A couple of prevalent themes in 2014 were uneven economic growth around the world and geopolitical tensions. Do you expect these themes to remain relevant into 2015 and beyond? What patterns do you see emerging as investors react to various geopolitical risks?

EL: Uneven growth has been a key theme in 2014, and it should remain a theme through much of 2015. However, if all goes well, divergent monetary policy trajectories and aggressive currency movements should eventually help to narrow the economic gap. Countries such as Europe and Japan arguably aren’t quite as weak as they have recently looked.

On the geopolitical front, it is quite rare for geopolitical risks to materially influence the global economy or markets and rarer yet for them to have staying power. Some of the bigger threats, while very real, seem manageable. Ebola has never shown the ability to gain significant traction in developed economies. ISIS has failed to send oil prices higher. Russia’s recent economic woes are concerning but are unlikely to bleed too far outside its borders.

Meanwhile, several other threats have nicely faded, such as the risk of Scottish and Catalonian independence. Overall, geopolitical risks will remain relevant in 2015, but they are unlikely to dominate the market landscape.

RS: We live in an age of information overload and “short-termism” with respect to financial news. Instant analysis is required for every data point when in fact better and more relevant information can be found in the details, not in the headlines. Data collection across distribution channels is not only a growing industry but has even morphed into an investment strategy. As such, the onus is upon all of us to make sure we are focused on what is important to us, to our process, and to our clients through credible sources and not get lost in the minutiae of the moment.