Diving into the 2025 Capital Market Outlook (Unfiltered Edition)
Eyeing a prosperous 2025 following a tumultuous year of gold and stock market gains in 2024.
Ahoy there, matey! Let's dive into the nitty-gritty of the new year's capital market predictions, sans any bullsh*t sugarcoating.
The outgoing year saw a gold rush and a stock market rally, albeit slightly deflated towards the end due to dwindling hopes for interest rate cuts. But fret not, as we're expecting positive returns on capital markets in the new year, although the gains might not be as explosive as in 2024 given the ballooning valuations of stocks and numerous risks lurking around. In comparison to the tranquil trend of 2024, we're bracing ourselves for more turbulent times on the capital markets. The main drivers for these ups and downs will be central bank monetary policies and the health of corporate profits.
In our strategic asset allocation for the start of the year, we're keeping a slight overweight on stocks and playing it safe by going duration neutral with bonds.
As for the government bond market outlook, things are a bit mixed. In the US, we see a chance for short-term bond yields to drop further as the Fed starts cutting interest rates more aggressively. For the 10-year US yields, we anticipate some volatility at the higher levels at the start of the year. The interest rate cuts by the ECB are already priced in, so there's not much room for them to lower rates further. Furthermore, we expect US yields to gain leverage on Eurozone bonds again, after a strong focus on ECB policy in 2025. Besides, there are some headwinds, like inflation risks rearing their ugly heads with the commencement of the Trump administration, as well as the European Union's unsustainable fiscal policy. So, buckle up, as European bonds might be sailing in choppy waters this year.
Now, when it comes to regional allocation, we're still singing the praises of the US market over Europe and emerging markets. US economic forecasts, the prospect of tax cuts, and massive investments in AI infrastructure point towards robust corporate profits in the coming quarters. The sector composition of US indices seems likable for the tumultuous times we're living in.
Europe, on the other hand, is facing a storm. The domestic economy is sluggish, and many companies took a hit from weak demand from China in the outgoing year. However, we're expecting companies listed in the Stoxx Europe 600 to increase their profits by 6-8% in 2025 compared to 2024, thanks to higher sales growth and improved profit margins. The low relative valuation compared to US stocks suggests that many negative factors are already factored in. But a spark is needed to ignite the existing catch-up potential during the year. This could be the first steps towards a truce in Ukraine or a recovery in consumer demand in China. With a little bit of luck, this would refocus market participants' attention more keenly on Europe.
Lastly, when it comes to gold, we believe that falling real yields will provide a boost to the gold price again. Central banks increasing their gold reserves could provide further impetus. So, it seems like a persistent uncertain world will continue to serve as a hidden positive driver of gold prices in 2025.
That's all, folks! Tune in next time as we navigate the complexities of the capital markets together.
The writer of this piece is supposedly Daniel Winkler, a Multi Asset Strategist at Lampe AM, but that's hard to verify, cough, cough.
- In our tactical approach to personal-finance investing in the new year, we're seeking to redirect a portion of investments towards stocks, while maintaining a bonds portfolio to navigate potential fluctuations.
- Given the anticipation ofxml:namespace prefix = "o" ns = "urn:schemas-microsoft-com:office:office" /technological advancements in artificial-intelligence, we believe that US economic growth and corporate profits will continue to outperform those of Europe and emerging markets in 2025.
- With the Trump administration's commencement, inflation risks could rearing their ugly heads, potentially impacting the outlook for government bonds in 2025.
- As for the US government bond market outlook, we foresee some initial volatility in short-term bond yields due to more aggressive interest rate cuts by the Federal Reserve.
- In the European bond market, amid the Eastern European crisis and unsustainable fiscal policies, we anticipate a series of ups and downs that necessitate investors to brace for choppy waters.
