Market Outlook For 2025 (Part 2)
12/10/2024
Growth and inflation will remain big-picture drivers for the economy in 2025. Inflation, measured by CPI, is still running at 2.6%, so we’re not entirely past it yet.
Looking ahead, and using BlackRock’s above chart as a guide, here’s how we see things shaping up:
On the growth front, pro-growth policies from the new administration, steady consumer spending, and investments in AI are creating a solid foundation for economic expansion. However, as we are in a late growth cycle, we expect growth to continue but at a slower pace.
On the Fed side, we expect the Federal Reserve to keep interest rates at higher levels to prevent the economy from overheating, staying focused on managing inflation and sticking to its policy independency.
Given this setup, we think the most likely scenarios are:
U.S. Corporate Strength: Businesses staying resilient with solid earnings. The market's broadening out is led by AI and new growth areas.
Subdued Growth with Stubborn Inflation: A slower economic pace, but inflation that’s hard to shake off.
With this in mind, some parts of the stock market look poised for growth, while bonds, particularly investment-grade fixed income, may face challenges. To navigate this, we’re focusing on:
Investing in growth areas and diversifying away from mega-cap firms: Expanding our stock exposure to sectors and companies with strong earnings / growth potential / stable cashflows.
Adding Alternatives: Incorporating private assets and alternative investments to balance out bond allocations and seek new opportunities for returns.
This strategy helps us stay flexible and positioned for both risks and opportunities in the year ahead.
Sources: Blackrock
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