Fairness and bond markets are set for positive factors in 2025 however the large uncertainty for traders would be the coverage decisions of incoming US president Donald Trump, say Wall Avenue strategists.
Ten main banks surveyed by the Monetary Instances, together with Goldman Sachs, Financial institution of America and HSBC, are on common upbeat on subsequent 12 months, with a lot of 2024’s themes set to proceed.
However they admit that Trump’s arrival within the White Home subsequent month and the way he implements plans comparable to commerce tariffs and tax cuts will likely be key for the path of economic markets.
In the meantime, banks may also be aiming to keep away from a repeat of final 12 months, the place many predicted a looming recession that didn’t materialise.
Bonds
Strategists anticipate US authorities bond yields to fall as inflation retreats within the first half of subsequent 12 months, however uncertainty round what Trump will do instantly after taking workplace has led to a spread of views on what occurs after that.
On common, strategists anticipate the US 10-year yield to fall to round 4.1 per cent from present ranges of round 4.49 per cent. Morgan Stanley has set out a extra bullish base case of three.6 per cent, however Deutsche Financial institution expects yields to climb to 4.7 per cent. Yields fall as costs rise.
The Federal Reserve will likely be “strolling a tightrope” subsequent 12 months forward of Trump’s administration kicking into gear, mentioned Vishwanath Tirupattur, international director of fastened earnings analysis at Morgan Stanley.
The US financial institution expects the Fed to maintain chopping borrowing prices till the center of subsequent 12 months earlier than inflationary forces from wide-ranging tariffs “pressure a pause” in fee cuts.
In distinction, Deutsche Financial institution mentioned the market was too optimistic and its personal base case relied on “present political realities” of fiscal easing, deregulation, tighter immigration controls and across-the board tariffs. All of those measures level to upward strain on inflation, it added.
The Fed is already exhibiting it’s slowing the tempo of fee cuts. Its resolution this month was considered as a “hawkish” minimize, because it scaled again expectations for additional reductions subsequent 12 months and included assumptions about Trump’s deliberate insurance policies into its forecasts.
Equities
Within the fairness market, banks anticipate the benchmark S&P 500 index to achieve contemporary highs subsequent 12 months, however most imagine it’ll underperform its historic annual common of 11 per cent.
9 of the ten banks anticipate the index, which has soared 23 per cent this 12 months to round 5,930, to climb by roughly 10 per cent in 2025 to round 6,550 factors. Société Générale expects it to fall to five,800.
Deutsche Financial institution expects it to climb as excessive as 7,000 factors on the again of the persistent power of the US financial system, though it mentioned the timing of potential shifts in coverage below the incoming president will likely be key to how the market performs.
The financial institution is assured {that a} rally pushed by traders’ big urge for food for synthetic intelligence shares will persist. “Valuations are unambiguously excessive however prone to maintain and possibly even go increased,” mentioned Bankim Chadha, Deutsche’s chief US equities strategist.
However different analysts mentioned they’re ready for indicators that the know-how will result in a income uplift for corporations.
Drew Pettit, an analyst at Citigroup, mentioned there have been “examples of [investor] exuberance” that might imply a extra unfavorable consequence in 2025, with uncertainty over Trump’s insurance policies doubtlessly weighing additional on the index. “We anticipate extra volatility. It’s not going to be a snug trip,” he mentioned.
Banks additionally anticipate European equities to rise, with potential tailwinds if European Central Financial institution cuts charges extra rapidly, there may be an finish to the conflict in Ukraine or the political conditions in France and Germany begin to stabilise.
5 of the ten banks surveyed anticipated European equities to rise subsequent 12 months. Whereas few have been bearish, UBS is alone in anticipating the market to show unfavorable subsequent 12 months.
Gerry Fowler, head of European fairness technique on the Swiss financial institution, mentioned the market was low cost however would commerce sideways subsequent 12 months.
“Europe appears to have stalled,” he mentioned. “There are only a few traders which can be optimistic . . . 2025 is shaping as much as be a difficult [year] for Europe.”
Currencies
Greater than half of the banks surveyed anticipate Trump’s insurance policies to drive the greenback even increased subsequent 12 months, regardless of the president-elect elevating issues about what this implies for America’s competitiveness in opposition to its buying and selling companions.
Deutsche Financial institution expects the greenback to achieve parity in opposition to the euro, which skilled the biggest decline of any G10 forex within the instant aftermath of November’s US presidential election. The greenback has already jumped from $1.11 in opposition to the euro to lower than $1.04 because the finish of September.
Kamakshya Trivedi, head of world overseas trade, rates of interest and rising markets technique at Goldman Sachs, mentioned that Trump’s desire for tariffs as a coverage measure helped carry spot costs.
“President Trump could have no compunction about massive tariff will increase . . . We anticipate the coverage mixture of tariff hikes and tax cuts will lend important help to the greenback over the approaching 12 months,” Trivedi mentioned.
BofA expects the dollar to strengthen in early 2025 however weaken again to $1.10 by the tip of subsequent 12 months as Trump’s rhetoric is translated into laborious coverage, with the market responding to the expectations of a “excellent storm of tariffs” quite than carried out insurance policies.
“We all know tariffs are coming, however we don’t know what they’ll be,” mentioned Kamal Sharma, senior FX strategist at BofA. “The ball is in Trump’s courtroom.”
Gold
The haven asset is extensively anticipated to proceed its ascent following a surprising 12 months on the again of the conflict in Ukraine and the Center East. Analysts anticipate demand from central banks and fears of inflation and monetary profligacy to be the driving forces subsequent 12 months.
Goldman Sachs and BofA anticipate the commodity to climb practically 13 per cent to $3,000 per troy ounce, although this could be lower than half the achieve seen this 12 months. On common, main banks anticipate an 8 per cent rise to $2,860.
Solely Morgan Stanley has guess that costs will stay at round present ranges, with strategists anticipating China’s weak financial system to be a headwind for bullion demand.
Oil
Though producer group Opec+ has set out plans this month to delay manufacturing will increase to help costs, banks nonetheless anticipate Brent to slip additional to round $70 per barrel by the tip of subsequent 12 months, from round $72.80 on Friday afternoon.
Kim Fustier, HSBC’s head of European oil and gasoline analysis, mentioned the cartel’s strikes have been unlikely to shift the path of costs. “Non-OPEC manufacturing is about to develop quicker than demand over 2025-26, leaving the group no house to unwind its cuts,” she mentioned.
However Goldman Sachs, which has set a forecast of $76 per barrel, mentioned that business shares have been visibly down in current months and costs would profit from strategic restocking within the US and China subsequent 12 months.
Extra reporting by Ray Douglas in London
