Outlook 2025: Daniel Morris (BNP Paribas AM)

Outlook 2025: Daniel Morris (BNP Paribas AM)

15 januari 2025

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Daniel Morris (photo credits BNP Paribas AM) 980x600.jpg

By Daniel Morris, Chief Market Strategist, BNP Paribas Asset Management

 

What are the main opportunities and threats for 2025?

‘Equity markets, and US equities in particular, have reacted positively to the larger-than-expected victory by Donald Trump in the US presidential election. These gains reflect higher expected earnings and inflation as a result of deregulation, M&A activity, and potential fiscal stimulus. We are currently overweight US equities in our multi-asset portfolios. One should recall that US equities outperformed non-US equities during the first Trump presidency (until the start of the Covid pandemic).

The risk is that the acceleration in US growth goes too far. Already, US growth and inflation had not been declining in line with the ‘soft landing’ view many held before the election. US GDP growth was 2.8% in the third quarter, more or less than same as in the prior quarter, and core inflation was steady at 2.7% in the most recent month. With stronger economic growth expected, how quickly inflation will return to the US Federal Reserve’s target level is an open question. While the Fed reduced the policy rate at its last meeting by 25bp, and the markets expect them to reduce it again at the next, it is unlikely the fed funds rate will fall as much next year as previously believed. As a result, 10-year Treasury yields may also remain elevated.

Future decisions by the Fed will depend on the impact on growth and inflation of policy decisions – particularly around tariffs, immigration and tax cuts – of the incoming administration. While much was said during the campaign, it is only once details are known, and measures actually passed by Congress when needed, that the Fed can begin to assess the consequences.’

 

The risk is that the acceleration in US growth goes too far.

 

 

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