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22/11/2024
Looking ahead: Our forecasts for 2025
Heading into 2025, the investment landscape is characterized by promising conditions offset by significant unpredictability. The reconciling forces of normalized growth and easing Inflation, combined with expected central-bank rate cuts, offer a favorable environment for various asset classes in our view. However, the election of Donald Trump to a second, non-consecutive term as U.S. President introduces an element of uncertainty that could affect market dynamics.
Our primary economic projection suggests continued global expansion, steering clear of recessionary threats in major economies. As our Chart of the Week shows, we expect U.S. growth of 2.0% in 2025, with the Eurozone growing at 0.9%. For 2026, we expect U.S. growth of 2.2% and 1% for the Eurozone. This reasonably positive backdrop seems supportive of equity markets, with high single-digit returns expected globally. U.S. equities, however, might be constrained by high valuations and a low Risk premium to start with, despite robust earnings. Large-cap technology stocks could still continue to lead the market, but their substantial index weight may introduce concentration risk.
*Gross-domestic-product (GDP) growth expectations for 2025 (year-on-year average in %)
**Consumer price inflation (CPI) expectations for 2025 (year-on-year average in %)
***Total-return expectations by year-end 2025 as of 11/15/24
Sources: DWS Investment GmbH as of 11/15/24
In bond markets, we expectyield curve to steepen further as central banks continue to cut rates, with the Federal funds rate reaching 3.75-4.00% and the European Central Bank (ECB) deposit rate at 2.0% by the end of 2025. We continue to favor Investment grade (IG) corporate bonds on the back of stable economic conditions, although we don’t expect spreads to tighten further.
We think Alternative assets, particularly residential real estate, will benefit from strong fundamentals despite fairly stable long-term interest rates. Gold, while it might not repeat its 2024 rally, could post respectable gains, adding some portfolio diversification and potentially acting as a Hedge against a number of potential economic threats. Those threats include geopolitical tensions, U.S. debt concerns and an unpredictable political climate. As we previously argued, we expect many of Trump’s tax and spending promises made on the campaign trail will probably need to be scaled back to reflect the political, fiscal and economic realities.[1]
In light of these factors, a globally diversified investment strategy across regions, asset classes and styles might mitigate individual risks and provide opportunities as they arise. Strategic vigilance and a balanced approach seem essential to navigate the complexities of 2025, allowing investors to position themselves to take advantage of market swings while being prepared for volatility.
Chart of the week- Debt or Alive? (dws.com)/DWS as of 11/15/2024
This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect. Past performance is not a guarantee of future results. Alternative investments may be speculative and involve significant risks including illiquidity, heightened potential for loss and lack of transparency. Alternatives are not suitable for all clients.
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