Fairness and bond markets are set for good points in 2025 however the large uncertainty for traders would be the coverage decisions of incoming US president Donald Trump, say Wall Avenue strategists.
Ten main banks surveyed by the Monetary Instances, together with Goldman Sachs, Financial institution of America and HSBC, are on common upbeat on subsequent yr, with a lot of 2024’s themes set to proceed.
However they admit that Trump’s arrival within the White Home subsequent month and the way he implements plans resembling commerce tariffs and tax cuts will likely be key for the path of monetary markets.
In the meantime, banks can even be aiming to keep away from a repeat of final yr, the place many predicted a looming recession that didn’t materialise.
Bonds
Strategists anticipate US authorities bond yields to fall as inflation retreats within the first half of subsequent yr, however uncertainty round what Trump will do instantly after taking workplace has led to a variety of views on what occurs after that.
On common, strategists anticipate the US 10-year yield to fall to round 4.1 per cent from present ranges of round 4.49 per cent. Morgan Stanley has set out a extra bullish base case of three.6 per cent, however Deutsche Financial institution expects yields to climb to 4.7 per cent. Yields fall as costs rise.
The Federal Reserve will likely be “strolling a tightrope” subsequent yr forward of Trump’s administration kicking into gear, stated Vishwanath Tirupattur, world director of fastened revenue analysis at Morgan Stanley.
The US financial institution expects the Fed to maintain reducing borrowing prices till the center of subsequent yr earlier than inflationary forces from wide-ranging tariffs “pressure a pause” in fee cuts.
In distinction, Deutsche Financial institution stated the market was too optimistic and its personal base case relied on “present political realities” of fiscal easing, deregulation, tighter immigration controls and across-the board tariffs. All of those measures level to upward strain on inflation, it added.
The Fed is already exhibiting it’s slowing the tempo of fee cuts. Its resolution this month was considered as a “hawkish” lower, because it scaled again expectations for additional reductions subsequent yr and included assumptions about Trump’s deliberate insurance policies into its forecasts.
Equities
Within the fairness market, banks anticipate the benchmark S&P 500 index to succeed in contemporary highs subsequent yr, however most consider it’s going to underperform its historic annual common of 11 per cent.
9 of the ten banks anticipate the index, which has soared 23 per cent this yr to round 5,930, to climb by roughly 10 per cent in 2025 to round 6,550 factors. Société Générale expects it to fall to five,800.
Deutsche Financial institution expects it to climb as excessive as 7,000 factors on the again of the persistent power of the US financial system, though it stated the timing of potential shifts in coverage below the incoming president will likely be key to how the market performs.
The financial institution is assured {that a} rally pushed by traders’ big urge for food for synthetic intelligence shares will persist. “Valuations are unambiguously excessive however more likely to maintain and perhaps even go larger,” stated Bankim Chadha, Deutsche’s chief US equities strategist.
However different analysts stated they’re ready for indicators that the expertise will result in a income uplift for corporations.
Drew Pettit, an analyst at Citigroup, stated there have been “examples of [investor] exuberance” that might imply a extra adverse final result in 2025, with uncertainty over Trump’s insurance policies doubtlessly weighing additional on the index. “We anticipate extra volatility. It’s not going to be a cushty experience,” he stated.
Banks additionally anticipate European equities to rise, with potential tailwinds if European Central Financial institution cuts charges extra shortly, there may be an finish to the battle in Ukraine or the political conditions in France and Germany begin to stabilise.
5 of the ten banks surveyed anticipated European equities to rise subsequent yr. Whereas few have been bearish, UBS is alone in anticipating the market to show adverse subsequent yr.
Gerry Fowler, head of European fairness technique on the Swiss financial institution, stated the market was low-cost however would commerce sideways subsequent yr.
“Europe appears to have stalled,” he stated. “There are only a few traders which can be optimistic . . . 2025 is shaping as much as be a difficult [year] for Europe.”
Currencies
Greater than half of the banks surveyed anticipate Trump’s insurance policies to drive the greenback even larger subsequent yr, regardless of the president-elect elevating issues about what this implies for America’s competitiveness towards its buying and selling companions.
Deutsche Financial institution expects the greenback to succeed in parity towards the euro, which skilled the most important decline of any G10 forex within the speedy aftermath of November’s US presidential election. The greenback has already jumped from $1.11 towards the euro to lower than $1.04 for the reason that finish of September.
Kamakshya Trivedi, head of world overseas change, rates of interest and rising markets technique at Goldman Sachs, stated that Trump’s desire for tariffs as a coverage measure helped carry spot costs.
“President Trump may have no compunction about giant tariff will increase . . . We anticipate the coverage mixture of tariff hikes and tax cuts will lend vital help to the greenback over the approaching yr,” Trivedi stated.
BofA expects the buck to strengthen in early 2025 however weaken again to $1.10 by the tip of subsequent yr as Trump’s rhetoric is translated into exhausting coverage, with the market responding to the expectations of a “good storm of tariffs” moderately than applied insurance policies.
“We all know tariffs are coming, however we don’t know what they’ll be,” stated Kamal Sharma, senior FX strategist at BofA. “The ball is in Trump’s courtroom.”
Gold
The haven asset is broadly anticipated to proceed its ascent following a surprising yr on the again of the battle in Ukraine and the Center East. Analysts anticipate demand from central banks and fears of inflation and monetary profligacy to be the driving forces subsequent yr.
Goldman Sachs and BofA anticipate the commodity to climb practically 13 per cent to $3,000 per troy ounce, although this might be lower than half the achieve seen this yr. On common, main banks anticipate an 8 per cent rise to $2,860.
Solely Morgan Stanley has guess that costs will stay at round present ranges, with strategists anticipating China’s weak financial system to be a headwind for bullion demand.
Oil
Though producer group Opec+ has set out plans this month to delay manufacturing will increase to help costs, banks nonetheless anticipate Brent to slip additional to round $70 per barrel by the tip of subsequent yr, from round $72.80 on Friday afternoon.
Kim Fustier, HSBC’s head of European oil and gasoline analysis, stated the cartel’s strikes have been unlikely to shift the path of costs. “Non-OPEC manufacturing is about to develop sooner than demand over 2025-26, leaving the group no house to unwind its cuts,” she stated.
However Goldman Sachs, which has set a forecast of $76 per barrel, stated that industrial shares have been visibly down in current months and costs would profit from strategic restocking within the US and China subsequent yr.
Further reporting by Ray Douglas in London
