U.S. stocks were a standout, with stock markets up 25% in 2023 and reaching new highs in the third quarter of 2024. This rally was supported by solid economic growth in the United States, of around 3% over a year, and a drop in inflation from 9 percent to 3 percent in early 2024.
Looking ahead, Columbia Threadneedle’s Macro Outlook 2025 report is quite optimistic about the earnings growth outlook for U.S. stocks in 2025, putting them at around 15 percent.
However, the company noted that this resilience is “to some extent a bit surprising”, given the anticipated risks to the global economy in 2025.
Although 2024 has yet to see a slowdown, ongoing geopolitical tensions present a significant risk, the firm warns.
The war in Ukraine continues with no end in sight, he says, while the situation in the Middle East is worsening despite calls for a ceasefire.
“These are above all human tragedies, but it is our duty to look beyond that to the economic consequences. Short-term volatility is a real concern, as well as in the long term the possible re-emergence of inflationary pressures, both of which will have a direct impact on businesses,” Columbia Threadneedle said.
Additionally, he highlights recent political changes in the United States, including Donald Trump’s presidential victory and the Republicans’ resumption of control of Congress, emphasizing that these changes could lead to changes in tax policy, regulation and international trade.
“Economic nationalism is increasingly entrenched,” the cabinet said. “Tariffs and sanctions tend to provoke retaliation and can potentially escalate. This will likely be an important theme in the years to come.
Columbia Threadneedle also expressed uncertainty about the future of inflation, noting that interest rate cuts next year are unlikely to be as deep as in the 2010s, with inflation below US underlying inflation is currently around 2.5 percent and core inflation is closer to 3 percent.
“This will have implications for investors and how they position their portfolios,” the company said.
Stocks, particularly in a falling rate environment, remain attractive, he says, but the likelihood that rates will not return to historic lows means that companies’ capital allocation decisions will be crucial in navigating the period to come.
The United States remains the most expensive stock market in the world, trading at more than 25 times forward earnings. By comparison, the MSCI All-Country World Index (excluding the United States) trades at just 16.3 times forward earnings, the widest gap in more than two decades.
However, according to Columbia Threadneedle, the dynamism of the American market, driven by sectors such as semiconductor equipment and artificial intelligence, offers strong growth potential.
That said, the US market could become overpriced, with underperformance likely as other regions grow faster.
“If, for example, Europe experiences faster growth, it will appear attractive because it is that much cheaper. Is he expected to do this? Elsewhere, China has disappointed in 2024 and, even if we now see the stimulus measures coming to fruition, will they be enough to generate higher and sustainable economic growth?
“Coupled with challenges related to its demographics and uncertainties regarding tariffs and global trade, there is some risk. »
In the longer term and beyond 2025, the company expects continued investments in alternative energies as part of the energy transition, but political and pragmatic considerations could dilute the objectives beyond the deadline of 2030, she warns.
A New Year’s Concern
Another concern for 2025 is the increasing budget deficit in major economies, including the United States, Japan, the United Kingdom and much of Europe, all of which are running deficits of between 5 and 6 percent. hundred.
Although she deemed these deficits “manageable” in a low interest rate environment, the combination of rising deficits and high interest rates could become “increasingly problematic”.
“When this becomes a priority, it will become a driver of market change,” the company said.
Overall, the company said, for global stocks to maintain exceptional performance, it would require stabilizing geopolitical risks, moderate growth and stable but low inflation, combined with a favorable rate environment.
“So, while we expect gains, we do not expect continued 20 to 25 percent growth in the U.S. stock market,” the company said.
