Economic growth in the US (+2.1%) is this year also expected to be higher than in the Eurozone (+1.1%). In addition, economists estimate the chance of a recession in the US at only 25% compared to 60% a year earlier.
Yet, the year 2025 begins with much uncertainty. One very important question to ask is. What will be the impact of President Trump’s policies on economic growth, inflation and geopolitical developments? The answer is still unclear. High import tariffs, a trade war with China and draconian restrictions on immigration are inflationary and detrimental to Global economic growth. On the other hand, other proposed policies are intended to stimulate growth in the US and reduce inflation. For example, Trump wants to implement measures that stimulate business investment and innovation. Growth would also benefit if Trump succeeds in permanently extending the corporate and income tax cuts, which expire in 2025. Similarly, Trump’s deregulation agenda could stimulate growth and lower prices over time. Trump also wants to increase US oil and gas production by three million barrels per day, which would lower energy prices. The “Department of Government Efficiency,” led by Elon Musk and Vivek Ramaswamy, is supposed to reduce inefficiencies in the public sector. In addition, Trump’s support among tech leaders suggests that we will see accelerated adoption of Artificial Intelligence, automation and biomedical research. Alpine Macro also points out that the US economy is on the cusp of a new “Productivity Boom”. This could lead to a scenario in 2025 with better-than-expected growth, lower inflation and further interest rate cuts from central banks.
The year 2024 will go down as a very good year for equity investors. For example, the S&P 500 rose by +23% (in USD) and the MSCI World Index by +27.2% (in EUR). Gold came close with a rise of +20% (in USD). European AAA-rated government bonds (+0.6%) and €-Cash (+3.8%) lagged far behind. The Compound Annual Growth Rate on equities has thus come to +7.5% (in EUR) since 1999 (compared to +2.8% (in EUR) for AAA-rated government bonds and +1.4% (in EUR) for €-Cash.
Fund managers expect equities to continue to be the best performing asset class in 2025. As many as 55% expect the highest returns to be achieved with US (30%) or global (25%) equities. It is also remarkable to see how many fund managers are positive about the prospects for Bitcoin (15%) and Gold (12%). The chance that Corporate Bonds (5%), Cash (5%) or Government Bonds (2%) will be the best performing asset class in 2025, on the other hand, is estimated to be low.
Although expectations for equities are also positive in 2025, the predictions vary widely. For example, more than 60% of strategists expect the S&P 500 to close 2025 at a level between 6,500 and 6,800. However, the range of expectations is between 4,400 and 7,400. So, thanks in part to President Trump, it promises to be another exciting investment year in which at the end of the year someone will be able to claim to have predicted the year correctly. However, the most important lesson in investing remains to keep your focus on the long term goals.
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