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This is the time of the year when strategists are busy sending out their annual outlooks. Here on the Global Investment Strategy team, we decided to go one step further. Rather than pontificating about what could happen in 2025, we decided to harness the power of the multiverse to tell you what did happen (in at least one highly representative timeline). Next week, please join me for a Webcast on Tuesday, December 17 at 10:30 AM EST (3:30 PM GMT, 4:30 PM CET) to discuss the economy and financial markets. And with that, I will sign off for the year. I wish you and your loved ones a very happy and healthy 2025. We will be back in the first week of January with our MacroQuant Model Update.
Trump's policies aim to support domestic producers and will be pro-growth and inflationary, at least initially. This environment is supportive of equities. Earnings will likely be strong, but elevated valuations make equities prone to a correction. Earnings growth broadening will translate into performance broadening – the S&P 493, Cyclicals, Value, Small and Mid are likely to outperform.
The real reason to own bonds is for their higher propensity to melt up, but anticipating those melt-ups is crucial. We list four indicators to monitor closely in 2025.
Congress will pass tax cuts by end of 2025 producing a fiscal thrust of about 0.9% of GDP in 2026. Trump will count on that stimulus as a basis for slapping tariffs on leading trade partners. China will retaliate against Trump and stimulate its domestic economy, while pursuing stronger trade ties with other countries. Europe will also retaliate. Geopolitical risk will shift from Ukraine-Russia to Israel-Iran, where the conflict will continue to escalate until a crisis point is reached within 2025.
While AI deployment creates compelling investment opportunities, hyperscale facilities are not the only path forward. Investors should consider Office conversions into colocation Data Centers as the next dollar opportunity.
This month, our Here, There, And Everywhere Chartpack summarizes our main thesis for 2025: the three main narratives driving markets today – fiscal profligacy, trade war, and geopolitical conflict – will peak at some point in 2025.
Four years after the pandemic, it feels like there has not been enough self-reflection of that fascinating period in history. One lesson for the world of finance continues to go ignored.