Multi-asset investment solutions team: Investment outlook for 2025

The final quarter of 2024 saw further interest rate cuts in the US, Europe and the UK, continuing conflict in Ukraine and the Middle East, and a political event with major global implications, Donald Trump’s re-election as US president. His victory was received positively by markets, with investors anticipating a pro-business agenda, amid pledges to reduce regulation and boost domestic growth. This result, combined with declining inflation and falling interest rates, contributed to a strong finish for financial markets.

In Asia, Beijing adopted a more aggressive stance in its efforts to support China’s struggling economy, which has been weighed down by persistently weaker growth and a lingering property market crisis. However, analysts have questioned whether the stimulus measures announced so far will be sufficient to restore consumer confidence and encourage spending.

Looking ahead, lower inflation and the anticipation of further interest rate cuts – albeit it at a slower pace than previously expected – set a positive tone for 2025. In Europe and the UK, where growth remains more fragile, rate reductions are likely to come sooner. The Federal Reserve is under less immediate pressure, given the stronger economic backdrop in the US.

While we believe the outlook is broadly positive, risks remain. These include potential further escalations of existing conflicts (or the outbreak of new ones), eye-watering levels of government debt in many developed economies and the possibility of policy missteps by the Trump administration.

The incoming president’s talk of new tariffs on goods imported into the US is one particular cause of uncertainty, with investors concerned about the potential impact on inflation and global trade.

Meanwhile, economic fundamentals remain robust in the US, the world’s largest economy. Wages are rising faster than inflation, labour markets are buoyant and corporate profit growth is accelerating. Enthusiasm for innovation and artificial intelligence continues to drive optimism, with opportunities emerging across various sectors.

After a period when the ‘Magnificent 7’ – Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta and Tesla – have led the way, we expect lower interest rates and deregulation to provide fertile ground that provides the potential for a broader range of equities to perform.

The current global equity bull market, which began in October 2022, marked its second anniversary in the final quarter of 2024. History provides reasons for optimism: since 1928, 80% of two-year bull markets for the S&P 500 have extended into a third year. This historical precedent – combined with easing inflation, falling interest rates and the potential for deregulation and tax cuts in the US – reinforces our view that the outlook for equities and bonds is positive.

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This article is provided for general information purposes only and should not be construed as personal financial advice to invest in any fund or product. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.