Investment Perspective Public Markets Summary and Outlook for 2025

Key Observations:

Economic Scenarios for 2025

• 2025 is a year of peak political and geopolitical impact as many changes disrupt the status quo globally and impact our economic scenarios.

• Our base case is for a ‘goldilocks’ aggregate global economy with growth and inflation not too hot and not too cold. We expect the US to be stronger than most economies while Australia, Europe, China and Japan have mildly positive growth. Under this scenario, we would expect inflation to remain under control but could well be slightly above central bank targets. Households receive gradual relief with some rate cuts but not too many. The sequence of US policies implemented under the Trump administration turn out to be not as severe, and mildly supportive in aggregate.

• The ‘bull’ case is for growth to be resurgent as policy action in the US leans towards positives first, such as company tax cuts, and China finally gains traction with policy measures to lift the economy out of recession and support a rebounding Europe. Inflation, however, picks up later in 2025. Australian exports and associated commodity prices surge.

• The ‘bear’ case is that policy measures in the US impact negatively at first. Early full tariff measures and a reverse of US immigration impose higher costs on businesses and households, while China and Europe recover. Inflation remains a drag and impacts households and businesses. The US risks slipping into recession. Australia’s growth falls into negative territory due to lower exports, capped inflation and slow rate cuts by the RBA.

Market Scenarios for 2025

• Under our base case, equity markets continue their positive run as company earnings improve and bond markets remain volatile. We expect some shift in probabilities back and forth between our bull and bear economic scenarios which impact markets. However, we think probabilities are tilted more positively than negatively.

• The positive run of equity and credit markets is likely to be interrupted at least once by a material correction which has a chance to raise systemic concerns, particularly in bank and derivative markets.

• While we are positive in aggregate across our scenarios, we expect that this can change rapidly as the sequencing and impact of US policy by the new administration ebbs and flows throughout the year. 

• Some Biden-era fiscal stimulus spending fades before Trump-era policy stimulates creating cross winds, hence we will watch financial market asset sensitivity to money flows from various sources.

Longer-term themes for the next few years

• Geopolitical volatility is the new normal and has to be factored into investment analysis.

• Climate change costs continue to rise.

• ESG as an investment theme fades and becomes integrated with less use of the ESG label.

• High government debt loads have an impact on regular, typically four-year refinancing cycles. 

• Technology curves converge and accelerate with merging AI, blockchain, hyperscale data and compute.

• Popular themes and narratives interact, creating waves of cheap vs expensive thematic investing opportunities.

• Generational disruption and challenge to traditional institutions from a more polarised society. 

Anecdotes that intersect the long-term view with right now

• Anti-crypto US SEC regulator Gensler resigns, giving way to pro-crypto regulators, policy makers and institutions.

• Gold and real assets surge highlighting the underlying concerns of monetary debasement.

• Russia and Ukraine increase intensity of military attacks increasing geopolitical risk ahead of possible peace deal.

Quarterly Market Performance (to 30 November 2024)

• Equity markets rose over the quarter in most markets.

• Ten-year government bonds rose to 4.7% in Australia and 4.5% in the US, then fell but remained above quarterly lows.

• Credit spreads move sideways over the quarter, near lows for Australia and at lows in the US for the year.

• Currencies were dominated by a stronger USD over the quarter while other major currencies were weaker.

• Commodities were volatile and mostly sideways to slightly up over the quarter, agriculture strongest, oil weakest.

• Volatility for the US Equity VIX dropped rapidly after the US election, finishing near yearly lows, while most other volatility indices across bonds, currency, oil and gold also fell towards quarterly and annual lows.

Market Performance

 

 

Click here to read the World Economies Update & Outlook December 2024

Click here to read the Asset Class Performance and Outlook December 2024

 

 

 

 

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.