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2025 Market Outlook: Key Themes and Ideas

Briefing Document: 2025 Market Outlook – Key Themes and Ideas

This briefing document synthesizes the main themes and important ideas presented across several 2025 market outlook reports from J.P. Morgan, Vanguard, Charles Schwab, Fundstrat, Ameriprise, and Deloitte.

I. Macroeconomic Outlook: A Balancing Act

  • Slowing Growth, Varying Degrees: Most sources anticipate a moderation in economic growth globally in 2025 compared to 2024. However, the extent of the slowdown varies by region. Vanguard forecasts below-trend growth in the Euro area (around 0.5%) but above-trend growth in Japan (around 1.2%). Ameriprise projects a slight deceleration in US real GDP from an estimated 2.8% in 2024 to 2.0% in 2025. Fundstrat highlights potential GDP recoveries in Europe and Asia.
  • Inflation Moderation with Stickiness in Some Areas: A general expectation is for inflation to continue its decline in 2025. J.P. Morgan anticipates EM inflation to fall to 2.8%. Vanguard expects Euro area inflation to end below 2%. However, some sources note the potential for sticky inflation, particularly in the US and the UK. J.P. Morgan’s Jay Barry suggests that if inflation stays elevated in the US, the Fed may stop easing earlier. Vanguard also mentions near-term inflation risks for the Euro area from rising natural-gas prices and a weakening euro.
  • Monetary Policy Divergence: Central bank actions are expected to diverge significantly. The US Fed and the Bank of England are projected to undertake shallow easing cycles, according to J.P. Morgan. Vanguard anticipates the ECB to continue cutting rates, reaching 1.75% by mid-2025, while the Bank of Japan is expected to resume its rate-hiking cycle, potentially reaching 1%. This divergence will have implications for global rates and currencies.
  • J.P. Morgan: “while we’re just talking about the Fed and U.S. exceptionalism, which is likely to keep policy rates more elevated, the story is different elsewhere across the globe. And in Europe in particular, it’s a much different story.”
  • Vanguard (ECB): “we expect it will continue cutting by 25 basis points until the July meeting and then hold it at 1.75%.”
  • Vanguard (BoJ): “we continue to expect the BoJ to raise its policy rate target to 1% by the end of 2025.”
  • US Exceptionalism: J.P. Morgan suggests that the US economy’s relative strength (“U.S. exceptionalism”) is likely to keep its policy rates more elevated compared to other developed markets.
  • Recession Risk: Charles Schwab cites Ned Davis Research, indicating that the probability of a US recession had increased to 35% as of August 15, 2024, due to softer labor market data and slowing economic growth.

II. Interest Rates and Fixed Income

  • “Love Higher Treasury Yields” (J.P. Morgan): J.P. Morgan’s outlook suggests that a shallow easing cycle in the US means limited room for Treasury yields to decline significantly. They expect rates to remain more elevated than in the past 15-20 years.
  • Jay Barry (J.P. Morgan): “I think this is exactly why we entitled our 2025 outlook, “How I Learned to Stop Worrying and Love Higher Treasury Yields.” It’s because a shallow easing cycle means that there’s going to be more limited room for Treasury yields to decline than we’ve seen in the full-blown easing cycles…”
  • Front-End of the Curve Attractive (J.P. Morgan): J.P. Morgan believes the front end of the US Treasury yield curve offers the most attractive positioning for lower rates, citing money market pricing, Fed rhetoric, and relative cheapness.
  • Steeper Yield Curves: J.P. Morgan anticipates steeper yield curves in both the US and Europe, albeit for different reasons. In the US, this is driven by a “seismic shift in demand” for Treasuries due to large budget deficits and declining participation from traditional buyers, requiring higher term premium. In Europe, steepening is expected for traditional bullish reasons around easing central bank policies.
  • Jay Barry (J.P. Morgan on US): “as their share of ownership in the Treasury market continues to decline, we need to rely on more price insensitive investors, and that’s going to mean they’re going to require more compensation in the form of higher term premium.”
  • Modest Rally in European Front End (J.P. Morgan): Due to the expectation of ECB easing, J.P. Morgan sees “substantial reason to think that the front end of the European curve can rally.”
  • Treasury Volatility (Ameriprise): Ameriprise suggests that the Treasury market could face a challenging year due to debt ceiling deliberations, a challenging debt/deficit picture, and geopolitical frictions. They recommend diversifying fixed income investments.

III. Currency Markets

  • Japanese Yen (JPY) as One to Watch (J.P. Morgan): J.P. Morgan highlights the JPY as a key currency due to the Bank of Japan’s expected rate hikes while the rest of the world eases. They anticipate the yen faring better than in the past year, particularly in crosses like EUR/JPY.
  • Meera Chandan (J.P. Morgan): “BoJ is one of the two central banks globally that actually will be hiking rates next year… looking for yen to actually fare better than it did in the past year.”
  • Weakening Euro (EUR) (J.P. Morgan & Vanguard): J.P. Morgan identifies the euro as the most vulnerable currency, expecting EUR/USD to reach 1.08 by December 2025. Vanguard also notes a weakening euro as a near-term risk to the Euro area inflation outlook.
  • Resilient Scandis (J.P. Morgan): Within the Euro bloc, J.P. Morgan expects the Swedish Krona (SEK) and Norwegian Krone (NOK) to outperform the euro due to their rate-sensitive and highly levered economies benefiting from central bank cuts.
  • Modest USD/JPY Decline Expected (J.P. Morgan): While the BoJ is expected to hike rates, J.P. Morgan anticipates only a modest decline in USD/JPY due to the US resilience story and structural factors in Japan. They project USD/JPY to reach 148 by the end of 2025.

IV. Equity Markets

  • Decent, Not Stellar, Returns Expected for Global Credit (J.P. Morgan): J.P. Morgan believes the global credit ecosystem remains robust with no evidence of excess positioning. They anticipate a “decent 2025” for credit markets with positive returns, although perhaps not exceptional.
  • Stephen Dulake (J.P. Morgan): “I think the overall credit ecosystem in a global context remains pretty robust. I think there’s no evidence of excess positioning, no excess leveraging complexity…”
  • Spread Movements Vary by Region (J.P. Morgan): J.P. Morgan forecasts slightly tighter spreads for US high grade and high yield, but a little wider spreads in Europe relative to the US, partly reflecting sovereign risks.
  • Interest Rates as Key Factor for Credit (J.P. Morgan): Unexpected revisions in interest rate expectations are seen as a potential risk for credit markets, potentially leading to positive credit rates correlation in a high volatility environment.
  • S&P 500 Targets Range Widely: Year-end 2025 S&P 500 targets vary across sources. Fundstrat has a mid-year target of 7,000 and a year-end target of 6,600. Ameriprise has a year-end target of 6,500.
  • Small Caps as a Top Sector Pick (Fundstrat): Fundstrat is bullish on small-cap stocks ($IWM), along with Financials ($XLF) and Industrials ($XLI). They note that profitable small caps have significantly outperformed non-profitable ones.
  • Focus on Shareholder Yield (Ameriprise): Ameriprise recommends focusing on companies that return value to shareholders through dividends or share buybacks, especially in an environment of potentially lower interest rates.
  • Industries Trump Sectors (Ameriprise): Ameriprise suggests that focusing on specific industries rather than broad sectors might be more effective, given the dominance of mega-cap companies in several sectors.
  • Profitability Matters in Small Caps (Charles Schwab): Charles Schwab highlights the significant performance difference between profitable and non-profitable companies within the Russell 2000 index.

V. Alternative Investments & Commodities

  • Bullish Outlook on Precious Metals (J.P. Morgan): J.P. Morgan maintains a multi-year bullish outlook on gold, forecasting a rise to around $3,000 per ounce in 2025. They also anticipate a “potent catch-up trade” in silver and platinum.
  • Natasha Kaneva (J.P. Morgan): “we maintain our multi-year bullish outlook on gold for a third year in a row… ultimately we forecast gold prices to rise to about $3,000 per ounce next year.”
  • Strong Fundamentals for Industrial Metals (J.P. Morgan): J.P. Morgan favors copper and aluminum due to strong demand (especially for copper) and supply constraints.
  • Bearish Outlook on Oil (J.P. Morgan): J.P. Morgan has moved to an outright bearish outlook on oil due to expectations of a large surplus in 2025 and 2026 driven by non-OPEC supply.
  • Bitcoin Upside to $250,000 (Fundstrat): Fundstrat is extremely bullish on Bitcoin, projecting a price of $250,000 by the end of 2025, driven by the “halving” cycle and potentially more favorable government regulations.

VI. Emerging Markets

  • Monetary Policy Easing Expected (Vanguard): Vanguard anticipates a broadening of the monetary policy easing cycle in emerging markets, although rates are expected to remain in restrictive territory due to a strong US dollar potentially stoking inflation.
  • Trade Developments in Focus (Vanguard & J.P. Morgan): Trade developments, particularly potential US tariffs, are expected to be a significant factor for emerging markets in 2025. J.P. Morgan notes that countries heavily reliant on trade with the US, especially China and related Asian supply chains, are most at risk.
  • Divergence Within Emerging Markets (J.P. Morgan): J.P. Morgan emphasizes the divergence within emerging markets. Commodity exporters (e.g., in Latin America and South Africa) might be more insulated, while countries like Turkey and Argentina present idiosyncratic stories.

VII. Consumer Products Industry (Deloitte)

  • Pricing Headwinds: Deloitte notes that consumer products companies are facing pricing headwinds and are looking for profitable growth beyond price increases.
  • Price-Pack Architecture: Companies are increasingly using price-pack architecture (adjusting pack sizes and pricing accordingly) to generate demand.
  • Focus on Efficiency and Profitable Growth: The outlook suggests a need for consumer products companies to focus on efficiency, cost management, and other levers for profitable growth in 2025.

VIII. Potential Risks and Uncertainties

  • Tariff Implementation (Fundstrat & Vanguard): The actual implementation and impact of tariffs, particularly by the US, is highlighted as a significant downside risk by Fundstrat and a key focus for emerging markets by Vanguard.
  • Interest Rate Revisions (J.P. Morgan): Unexpected changes in interest rate expectations could create disorder in rate markets and impact credit.
  • Geopolitical Frictions (Ameriprise): Geopolitical risks are seen as a potential factor that could inflame Treasury market volatility.
  • Consumer and Business Sentiment: Uncertainty related to tariffs and the broader economic outlook could weigh on consumer and business sentiment (Vanguard).

This briefing document provides a high-level overview of the key themes and ideas presented in the provided market outlook reports. For detailed analysis and specific forecasts, please refer to the original sources.