CIO Pulse Survey

The investment outlook suggests a gradual decrease in the US federal funds rate, with expectations of it reaching around 3.6% by the end of 2025, implying multiple rate cuts. Inflation, as measured by US core PCE, is projected to decline to 2.4%, slightly above the Fed's and Bloomberg's consensus of 2.2%, indicating a moderate inflationary environment. Unemployment is anticipated to remain below the long-term average, slightly increasing to 4.4%, suggesting a stable labor market.

Investment focus is recommended on sectors such as technology, healthcare, and financials, with a favorable view on small-cap stocks, the S&P 500 Index, and international indexes excluding the US. The S&P 500 is projected to end 2025 at a level between 5,800 and 6,000, with earnings growth anticipated at 6.8%, which is lower than the FactSet expectation of 14.9%. The yield on the 10-year US Treasury is expected to be around 3.75% by the end of 2025, reflecting a moderate interest rate environment.

High-yield spreads are predicted to widen modestly from nearly 300 basis points to about 400 basis points, indicating a slight increase in credit risk. Potential risks to this outlook include earnings falling below expectations, the possibility of a recession, geopolitical tensions, and changes in fiscal policy. These factors could impact investment decisions and necessitate a cautious approach.