Market Outlook for 2025: Gauging the Global Effects of New US Policies

The macroeconomic outlook for 2025 suggests a period of slower growth, with central banks likely to cut interest rates. This environment may be influenced by US-centric policies that could impact developed-market economies, allowing their central banks to adopt more aggressive monetary policies. The reelection of Trump has initially been positively received by markets, but the implications of tax cuts and tariffs require careful analysis. Companies that can reinvest tax windfalls effectively may benefit, while those with extensive international supply chains could face challenges from tariffs.

Tariffs, if implemented, could lead to lower US imports, a stronger dollar, and potentially higher consumer taxes, creating short-term inflationary pressures. Countries with significant trade surpluses with the US, like Mexico, may be more affected than others. Equity markets enjoyed a robust 2024, with US valuations particularly elevated in the technology sector. However, opportunities exist in US industrials, materials, and financials, as well as in international markets where valuations are at or below historical norms. Small-cap stocks also present growth opportunities given their low valuations.

For fixed-income investors, the anticipated rate cuts and substantial cash reserves in the US could create buying opportunities in credit markets. Maintaining duration in portfolios is advised to protect against potential market volatility. Overall, while risks persist, there are significant opportunities in both equities and fixed income, necessitating an active management approach to navigate the uncertainties of 2025 effectively.