What’s the story?

We expect the usual ebbs and flows in 2025, but the overall investment outlook is favourable — and we remain invested. With earnings growth poised to gain momentum and corporate bond yields still compelling, we see opportunities in both equities and corporate bonds. At the same time, we acknowledge that after two very good years in the US market, a correction could be on the horizon. There may thus be periods ahead when capital preservation takes priority. The investment universe is expanding rapidly. From private markets to hedge funds, digital assets, and gold, a widening investment field translates into a growing opportunity set for diversified portfolios.

2025 will be about the fiscal, geopolitical, and corporate deals on the table 

Yet, as is the case for any deal, it will be about getting it right. This is true for global policymakers who are committed to generating stronger growth. In the US, the expected Trump tax cuts and deregulation are likely to strengthen the economy. However, policymakers will need to ensure that inflation does not roar back. Meanwhile, European countries are under pressure to address their growth weakness. Interest rates are being cut, but there is a real need for structural reforms and fiscal stimulus. The impact of any Trump tariffs is an additional consideration. These tariffs would also put further pressure on Chinese policymakers to implement meaningful fiscal stimulus measures that create a floor under house prices and stimulate consumption.

The good news is that inflation is no longer the main challenge for policymakers. As a result, major central banks can afford to lower interest rates. Some will have to cut more (e.g. the European Central Bank), while others will be able to cut less (e.g. the US Federal Reserve). Against this backdrop, we continue to see an attractive investment environment in 2025.

Equities: A bigger playing field

Our research analysts continue to see equities as their preferred asset class, and they suggest that setbacks can be viewed as investment windows. As earnings growth accelerates and market breadth widens, investors will have the opportunity to diversify into more cyclical market segments. Our analysts’ preferred segments include industrials, US financials, and quality mid-caps.

Fixed income: Give credit where credit is due

Higher US nominal growth, driven by both real growth and inflation, argues for higher yields for longer. This implies a preference for reasonable debt exposure over US Treasuries. The sweet spot is low-investment-grade US corporates with a balanced duration (3 to 7 years). For investors seeking higher yields, US high-yield bonds could do well in a context of stronger growth and lower default rates. They offer attractive carry, although valuations are stretched. In Europe, a weaker growth and lower inflation environment leads us to focus on quality; we see more value in duration.

Gold: Keeps on shining

In the longer term, major emerging markets should continue to accumulate gold as a hedge against Western economic pressures while most major economies are cutting interest rates. Thus, the long-term outlook for gold is consistent with the short-term outlook. We see central-bank buying as the strongest structural force in the gold market, with China most notably in the lead, not only for 2025 but also beyond.

Currencies: Interest rates matter, but not by themselves 

Our Research analysts expect the USD to remain strong on the back of higher growth. However, the long-term risks for the USD include a rising fiscal debt. We expect some rangebound activity in USD trading in 2025. The EUR is facing headwinds from a soft economy and political uncertainty, but many of the concerns are already priced in. The CHF’s safe-haven premium is justified, even in the face of already low and further declining interest rates.

Alternative investments: Build a resilient portfolio 

Deregulation in the US could lead to an increase in mergers and acquisitions, which would likely benefit buyout funds and private markets overall. Direct lending strategies may offer superior returns and historically low losses at a time when public market spreads are tight. There is also a real global need for infrastructure investment. For investors, it can be a source of income, inflation protection, and diversified exposure. Moreover, multi-strategy hedge funds could find a fertile environment, especially in times of volatility, allowing them to capture windows of opportunity with their advanced investing techniques.

What does this mean for investors?

Of course, as in any year, there are risks. We call them the ‘wild cards’ to watch out for in 2025. These include geopolitics, infrastructure failures, US politics, monetary/fiscal policy mistakes, and trade tensions. There may also be unforeseen risks that are not on the horizon today but will need to be addressed as they arise. The arguments about why now is not a good time to invest never seem to go out of fashion. 

However, not being invested means letting inflation eat away at the real value of your assets and giving up too much in the way of potential returns, especially when our analysts believe that the investment environment for 2025 looks promising. To find out more, download the full Market Outlook brochure at the top of the page.