US equity markets did particularly well in 2024, outperforming other regions. In 2025, the first measures taken by the Trump administration will be decisive, as they are likely to have an impact on the rest of the world.
Yoann Ignatiew, General Partner, Global Equities Portfolio Manager Rothschild & Co Asset Management.
What to Remember from 2024 ?
In 2024, the global economy demonstrated remarkable resilience. The gradual decline in inflation enabled central banks to initiate a cycle of monetary easing, growth remained steady, and companies recorded significant profit increases. Global equity markets closed the year with strong gains, with the MSCI All Country World Index up by 15.7%1. However, regional disparities emerged: the United States outperformed with a 23.3%1 rise in the S&P 500, while China, despite a challenging context, saw the Hang Seng gain 17.7%1. The Eurozone, hindered by geopolitical tensions and political instability, ended more modestly at +8.3%1.
The slowdown in inflation allowed the ECB and the Fed to cut their benchmark rates by 100 basis points, settling at 3% and 4.25%2, respectively. These adjustments reflect distinct economic dynamics, with inflation near 2% in the Eurozone but still above 3% for its core component in the United States3. The year 2024 was also marked by major political events. In the United States, Donald Trump’s victory was greeted with optimism by the markets. In China, measures aimed at stabilizing the real estate sector and boosting domestic demand initially had positive effects, though momentum faded in the fourth quarter. In Europe, elections further accentuated political fragmentation.
What Is Your Central Scenario for 2025 ?
We approach 2025 with a decidedly cautious stance, refraining from significantly re-exposing ourselves to risk in the current context. The repercussions of last year’s global election cycle, coupled with Donald Trump’s second term in the United States, amplify uncertainties surrounding inflation, growth, and trade. Investors must also navigate an environment marked by new geopolitical realities, evolving supply chains, and the rapid rise of artificial intelligence. Within this context, we remain convinced that opportunities persist. In the United States, the equity market remains attractive due to robust economic growth, strong earnings, and significant innovation. While inflows remain concentrated on the “Magnificent 7”4, other opportunities exist, notably in banking stocks, which should benefit from promised deregulation. Corporate earnings expectations, with projected growth around 15%5, warrant close monitoring. Any disappointment could lead to significant sell-offs.
In Europe, despite challenges related to energy, political instability, and low productivity, opportunities exist in sectors such as healthcare, industries, and luxury goods, driven by globally competitive companies. It’s difficult to consider emerging markets as a homogeneous bloc, given their diverse economic characteristics. Nonetheless, growth has shown remarkable resilience overall, and inflation has receded significantly from the peaks of 2022. In China, despite substantial stimulus measures, the government struggles to boost domestic demand. November’s monetary easing announcements disappointed, but the government retains room to increase deficits. Trump’s re-election and the threat of new tariffs could heighten pressure, forcing Beijing to prioritize domestic consumption amid a more challenging export environment. We remain committed to exposure in local consumption in China and, more broadly, across Asia and Latin America. In conclusion, our scenario envisions an uncertain environment where geopolitical, inflationary, and growth-related challenges coexist with opportunities, particularly in specific sectors and resilient regional markets.
Tailwinds and Headwinds ?
In 2025, several key factors could influence markets, including the divergence in monetary policies between the Fed and the ECB. The Fed may maintain high rates to contain inflation spurred by Trump’s expansionary policies, while the ECB might adopt a more accommodative stance to support sluggish growth in Europe. The first 100 days of the new U.S. president will be crucial: his tax cuts and promised deregulations could stimulate short-term growth, but heightened protectionism risks stifling the economy and exacerbating inflation. A strong dollar could weigh on U.S. exports and challenge emerging economies with dollar-denominated debt. Simultaneously, the artificial intelligence craze, which is concentrating stock market inflows, warrants caution. A significant correction could occur if investors are disappointed in companies’ ability to turn this technology into concrete results. Moreover, the development of AI poses energy challenges due to its high consumption. In Asia, China must refocus growth on domestic demand to offset a more challenging international trade environment. Globally, rising public debts remain a major challenge, with the U.S. budget deficit at 6.3% of GDP in 2024 and global debt reaching 93% of GDP6.
[1] Bloomberg, 12/31/2024. Performance expressed in local currencies, dividends reinvested.
[2] ECB, Fed, December 2024.
[3] Source : Eurostat, U.S. Bureau of Labor Statistics, December 2024.
[4] Price-Earnings Ratio: ratio of price to earnings.
[5] Source : Consensus December 2024.
[6] Purchasing Managers’ Index, an indicator reflecting purchasing managers’ confidence in a sector. A value above 50 indicates expanding activity, while below 50 indicates contraction.
