Macroeconomic Landscape: The global economy is expected to deliver above-trend growth in 2025. In the US, GDP is projected to exceed 2%, supported by strong consumer spending and real income growth. Inflation will remain a concern, driven by fiscal deficits and potential new tariffs.
US Federal Reserve Policy: The Federal Reserve is likely to maintain interest rates near 4%, a neutral level that neither stimulates nor restricts growth. Fiscal challenges, including a high budget deficit, will continue to pressure long-term bond yields and investor confidence.
Investment Themes for 2025: Small- and mid-cap US equities provide good opportunities as valuations are more attractive in comparison to large caps. Corporate bonds remain a source of focus, with strong fundamentals and tight spreads. Mergers, acquisitions, and IPOs are expected to pick up, fueled by reduced regulations under the new US Administration.
Sector and Regional Insights: The US maintains global dominance in innovation and productivity, though high valuations in mega-cap equities necessitate caution. Japan shows potential for continued outperformance with stabilized currency volatility, while Europe faces mixed prospects as political instability in France and Germany contrasts with relative stability in the UK.
Private Markets: Valuations in private markets remain attractive compared to public equities. Opportunities exist in secondaries, continuation funds, and real estate, especially in sectors like data centers, healthcare, and logistics. Publicly traded REITs also offer attractive entry points.
Global Risks and Geopolitical Concerns: Geopolitical tensions could disrupt markets, particularly from the US-China trade dynamic and the potential for increased tariffs. Political instability in Europe and unknown global risks, such as fiscal imbalances, remain significant concerns for 2025.
Strategic Recommendations: Investors should diversify their portfolios across asset classes and regions. Undervalued small-cap stocks, private equity, and real estate offer strong potential. Caution is advised for US equities, and preparation for volatility from geopolitical and fiscal risks is essential.
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