ANNUAL INVESTMENT OUTLOOK 2024
In this Outlook we highlight the trends for the end of the year and discuss the possible outcomes stepping into 2025. We wish you a pleasant reading and mindful investment decisions.
The election result sparked a market rally as investors bet on potential tax cuts and deregulation boosting corporate profits. US equities experienced a strong rally, where S&P 500 index posted a 5.7% gain for the month, marking its largest monthly increase of 2024, and closed November up about 26.5% year-to-date. This puts the index on track for consecutive annual gains of at least 20%, a feat not seen since 1995-1998, and it‘s poised for its best year since 1998.
Historical patterns suggest that the positive momentum may continue, at least in the short term.
While this initial response seems logical, it‘s uncertain how long the markets will stay optimistic. After all, the S&P 500 had its best month in a year, significantly outpacing global counterparts. While Trump‘s administration is likely to support corporate profitability, history from his first term suggests that the path won‘t always be smooth.
BENDURA Market Views
The terms attractive / unattractive describe the return potential of the various asset classes. An asset class is considered attractive if its expected return is above the local cash rate. It is considered unattractive if the expected return is negative. Very attractive / very unattractive denote the highest conviction views of the BENDURA Investment Committee. The time horizon for these views is 3-6 months.
Global Economy
United States
The U.S. economy has outpaced other advanced economies in recent years, with its GDP expanding by 11.4% since the end of 2019.
The International Monetary Fund (IMF) projects U.S. growth to reach 2.8% this year, making it the envy of the developed world despite challenges such as the costof-living crisis and global uncertainty.
The October Consumer Price Index (CPI) report showed mixed results. Headline inflation rose to 2.6%, up from 2.4% in September, which was slightly above economists’ expectations but not a major concern. Core CPI, which excludes food and energy prices, increased by 3.3% from the previous October, a modest rise from the 3.25% in September.
Economists have highlighted that the path to the Federal Reserve’s inflation target will be slow and uneven. While the Fed is unlikely to be swayed by occasional inflationary blips, the market has begun to expect a steady rate-cutting cycle.
It is also expected that the U.S. will mantain its economic leadership over the next decade.
Consensus Economics forecasts U.S. growth at 1.9% next year, making it the fastest-growing economy in the G7. Looking ahead, the U.S. is still expected to lead in terms of growth, maintaining its position at the top of the global economic hierarchy.
EUROPE
Sector focus in Europe during November was primarily driven by concerns over trade tensions and the potential impact of Trump‘s policies. Europe‘s economy, heavily reliant on exports, was seen as particularly vulnerable to these risks.
Europe, as a major trading partner of the US and China, will be significantly impacted by tariffs. These tariffs, particularly if they target European exports, could create inflationary pressures but may also lead to deflation if they destabilize global economic activity.
Hence, the outlook for the European economy is highly dependent on trade dynamics and the evolving US-China relationship.
Geopolitical uncertainties were also heightened due to Trump‘s ambivalent stance on supporting Ukraine and his mixed comments about NATO. Equity strategists warned that several industries could be significantly impacted by these factors, especially automakers and chemical companies, many of which export heavily to the U.S.
The political stance in Europe is also worsening. German Chancellor Olaf Scholz (SPD) dismissed Finance Minister Christian Lindner (FDP) after they failed to reach a compromise on economic policy. Scholz proposed a series of reforms but wanted Lindner to agree to suspend the debt brake rules to allow more borrowing, a stance Lindner refused. Fiscal policy is expected to be a key issue in the election, with both the economy ministry and Bundesbank‘s Jens Weidmann warning about the risks to
growth.
While France is not facing immediate liquidity problems, there are growing concerns about political insolvency, with the country’s debt growing at a rate of around 6% of GDP annually, raising doubts about France’s ability to achieve fiscal consolidation.
Asien
Beijing continued taking incremental steps to support the Chinese economy, especially to avoid an economic collapse. However, these measures are unlikely to spark a significant growth impulse for the global
economy.
There is a possibility of a preemptive deal between China and the US or more stimulus measures to help China navigate the consequences of the ongoing trade war.
However, both options would come at significant cost and are unlikely to deliver immediate benefits, meaning the global
economy may face a period of economic pain before any substantial positive outcomes materialize.
Looking into 2025
The recent political developments, particularly with Trump’s election, are shifting expectations towards a more challenging environment. Fiscal policies, especially under a Trump administration, are likely to be expansionary, which could drive both growth and inflation higher, also pushing up yields.
In the short term, there is a shift towards caution—not because of the same concerns that dominated the past year, but due to potential trade actions from the Trump administration in 2025. This poses risks to both global and US economic growth, particularly if tariffs are imposed.
The most likely fiscal policy scenario is one of moderate deficit expansion combined with deregulation—reminiscent of the fiscal policies enacted in 2017. This would likely boost US growth and corporate profits, warranting a more positive stance on US equities over the next 6-12 months. However, this also comes with risks, especially if fiscal policy proves to be too bullish, leading to a significant rise in government bond yields, which could offset some of the positive effects of growth.
Equities
The Magnificent Seven
Indeed, 2024 was more favorable to equities than we thought, although not for as benign a reason as suggested. The fundamental support for equities was considerably weaker than implied by this year’s returns.
In the US both, profit growth and the market valuation are above average. There are currently indications that little will change.
The US economy is growing faster than the eurozone and is benefiting more from the from the special stimulus provided by artificial intelligence. In addition, the new government has announced a reduction in corporate taxes and tariffs on foreign goods. On the stock market, 2024 has so far been the year of the “Magnificent Seven”.
These seven companies have shown impressive earnings growth and have left the overall market far behind. Their valuation is now correspondingly high, but there are major differences within the group.
Sorted by forward P/E ratio, it can be seen that Alphabet and Meta are the only members of the group that are hardly more expensive than the market as a whole. Nevertheless, the communications sector shows a slight decline both in comparison to its own history over the last
25 years and compared to the market. The communications forward P/E ratio and is therefore not valued at an above-average the other technology-related sectors.
The Magnificent Seven
Apple
Microsoft
Amazon
Alphabet
Tesla
Meta
Nvidia
November was another strong month in an already great year, with the S&P 500 rising 5.7%, bringing its year-to-date gain to 26.5%. Remarkably, this was the weakest of the major indices, with the Nasdaq rising 6.2%, the Dow increasing 7.5%, and the Russell 2000 up 10.8%. The S&P 500 recorded its 53rd record close of the year, while the Dow reached its 47th. U.S. stocks had their best monthly performance of the
year.
EUROPEAN EQUITY MARKETS
In Europe, equity markets had mixed performance in 2024. The German DAX ended the month with 2.88% and year-to-date result of 12.88%, recently buoyed by resilient corporate earnings and renewed optimism for pro-growth reforms following the collapse of the ruling coalition. Despite bouts of political uncertainty, expectations for economic policy shifts supported
investor sentiment.
Conversely, the French CAC 40 declined 1.57%, weighed down by fiscal concerns and budgetary challenges that undermined French assets.
Across the region, Donald Trump’s election victory in the United States dominated market and political focus, sparking fears of potential tariffs and trade disputes, further complicating Europe’s fragile economic recovery.
ASIAN EQUITY MARKETS
In Asia, equities faced significant selling pressure from foreign investors throughout 2024.
Foreigners net withdrew $189.88 billion from equity markets in Taiwan, South Korea, India, Thailand, Indonesia, Vietnam,
and the Philippines over the year, reflecting the largest annual net outflows since June 2022.
Concerns over potential U.S. tariff hikes under the Trump administration, alongside regional economic slowdowns, contributed to investor caution and sustained selling pressure across the region.
Overall Equity Market Outlook
The equity markets in 2025 are expected to experience moderate growth, driven by a balance between supportive economic fundamentals and persistent uncertainties. Central banks worldwide are likely to maintain cautious monetary policies, with inflation showing signs of stabilization after aggressive tightening cycles in previous years. Corporate earnings are projected to recover in sectors such as technology, healthcare, and energy, which could drive selective equity performance. However, geopolitical tensions, high debt levels, and potential structural shifts in global trade could introduce periods of volatility
Key themes for 2025
Technology & Innovation: AI, renewable energy, and digital infrastructure remain major growth drivers.
Earnings Growth: Margins could face pressure in some industries due to higher labor and input
costs, but pricing power in specific sectors may offset this.
Trump Presidency: While Trump‘s administration is likely to support corporate profitability, history from his first term suggests that the path won‘t always be smooth.
United States Equity Market Outlook
The U.S. equity markets are expected to remain resilient, supported by robust economic growth and technological innovation. Despite higher borrowing costs, consumer spending and corporate investments are anticipated to provide a strong foundation for earnings growth. However, challenges like elevated valuations in tech and potential fiscal constraints could moderate returns.
Key Drivers
Tech Leadership: Large-cap tech firms leading advancements
in AI and cloud computing will likely dominate performance.
Energy Transition: Renewables and green tech will attract
investor interest as the U.S. accelerates its clean energy policies.
European Equity Market Outlook
European equities may face a mixed environment in 2025, as growth is constrained by structural challenges such as aging populations and energy dependency. However, renewed fiscal stimulus and the green transition initiatives under the EU’s “Fit for 55” package could provide opportunities in targeted sectors.
Key Drivers
Green Energy: Investments in hydrogen, solar, and wind
technologies as part of the EU’s climate targets.
Industrial Revival: Support for domestic manufacturing
amid reshoring efforts and supply chain diversification.
Emerging Markets Equity Outlook
Emerging markets (EM) equities are poised for a rebound, particularly in Asia, where growth is driven by China’s economic stabilization and India’s expansion. However, EM performance will vary significantly, with countries highly dependent on commodity exports potentially facing challenges amid price normalization.
Key Drivers
India: Structural reforms and increasing foreign direct investment (FDI) in manufacturing and tech sectors.
China: Policy easing and domestic consumption recovery could reignite growth.
Digital Economies: EM countries with strong tech ecosystems (e.g., Southeast Asia) could outperform.
Commodity-importing: EM economies may benefit from softer
commodity prices, while exporters will need to adjust to reduced revenues from resources like oil and metals.
Fixed Income
Treasury yields were mixed in recent weeks, with 2-year yields rising by just over 2 basis points and 10-year yields falling by almost 11 basis points. Current yields for 2-year and 10-year bonds are 4.15 and 4.19
accordingly.
Meanwhile, the difference in yields between French bonds and German bonds narrowed slightly after reaching a 12-year high.
This shift in yields reflects growing
concerns about the political and fiscal situation in France, particularly as the government struggles to pass significant tax increases and spending cuts worth €60 billion under Prime Minister Barnier’s minority administration.
Following the CPI report, expectations for a 25-basis-point rate cut in US rose slightly, but yields remained unchanged, indicating that the market is increasingly aligning with the Fed’s more cautious approach to
inflation and interest rates.
It indicates that rate cuts next year might not be as fast as previously expected, or, depending on the extreme cases, might rise. The European Central Bank (ECB) is expected to announce 25-basis-point rate cut in December.
This move aligns with its ongoing strategy to ease monetary policy as inflation trends suggest it is on track to reach the ECB’s target by early 2025.
However, opinions among ECB policymakers vary regarding the pace and extent of rate reductions, with some urging caution amid economic uncertainties and potential trade war with Trump’s administration.
Fixed Outcome Outlook
The outcome of the expected development of the bond yields in 2025 deeply lies on the decisions of a new Trump’s cabinet. In a very aggressive fiscal expansion scenario, the change in interest rate expectations and the expected increase in the maturity premium would push government bond yields to levels not seen since the early 2000s. Although, this scenario is less likely. The most likely outcome is that government bonds should do well, since investors are focusing too much on Trump‘s promises, while ignoring the fact that his political constraints and the macroeconomic outlook have an impact how far and how aggressively the
president can act. Given the uncertainties surrounding trade actions and the impact of fiscal policy, the recommended strategy is to overweight longer-term bonds, as they offer an attractive risk-reward profile. Also, long portfolio duration would be a good position to take for now.
Chart 2. 12-month risk/return profile of Treasurys is
attractive. Source: BCA Research, www.bcaresearch.com
Key Drivers
Monetary and Fiscal Policy: Central Bank decisions and fiscal policy will play a pivotal role in shaping bond yields.
Inflation and Growth Expectations: Inflation trends and economic growth prospects will directly impact bond yields.
Commodities and Currencies
US crude oil production established a new record in 2024. The rising share of US output at the expense of OPEC is becoming unsustainable. The additional supply into the market could be significant considering that OPEC has about 6% of spare capacity.
A stronger US dollar and lower expectations of interest rate cuts by the Fed caused the gold price to correct immediately after the US elections. This was also reflected in investor demand. After exchange-traded gold funds (gold ETFs) recorded inflows in recent months, investors have withdrawn their money from liquid gold investments over the last few weeks.
Speculative investors also reduced their previously high buying positions. Silver also corrected in parallel with gold. However, the downward trend in precious metals did not last long, and by the end of the month gold had already recovered some of its losses. The sharp rise in the price of gold this year has been accompanied by rising demand.
According to the World Gold Council
3,760 tons at the end of September, the
highest ever recorded measured for the
first nine months of the year.
So far, the 2016 script has more or less repeated itself, with the dollar gaining significantly since the US elections. Looking to next year, we do not expect a dollar correction as in 2017—for two reasons: In contrast to eight years ago, the global economy is at a different point which applies in particular to industrial activity in Europe. Although we expect growth to recover slightly next year, however, the momentum will remain weak due to the monetary policy and structural factors putting the brakes on growth.
Commodities and Currencies Outlook 2025
Gold
Gold is expected to remain an attractive asset in 2025, supported by its safe-haven appeal amid lingering geopolitical tensions and central bank activity. While stabilizing inflation and higher real interest rates may cap upside potential, gold will continue to serve as a hedge against currency devaluation and macroeconomic uncertainty.
Chart 3. Central Bank Purchases Are Supporting
Gold Prices. Source: BCA Research, www.bcaresearch.com
Key Drivers
Central Bank Demand: Many central banks, especially in emerging markets, are likely to continue accumulating gold reserves to diversify
away from the U.S. dollar
Market Volatility: Periods of uncertainty or equity market corrections may drive investors toward
gold.
Major Currencies
Currency markets in 2025 are expected to be influenced by divergent monetary policies, slowing global growth, and shifts in trade dynamics.
Key Drivers
US-Dollar (USD): The dollar may weaken as the Federal Reserve approaches a plateau in interest
rates and other central banks play catchup. However, its safe-haven status will remain robust.
Euro (EUR): A stabilization of energy markets and
fiscal support could strengthen the euro, though sluggish economic growth in parts of Europe may cap gains.
Japanischer Yen (JPY): The yen might see appreciation as the Bank of Japan adjusts its yield curve control policy, making it more attractive
for global investors.
Oil
Oil markets in 2025 are expected to navigate a challenging balance between demand recovery and supply-side uncertainties. The energy transition, geopolitical developments, and OPEC+ production decisions will play pivotal roles.
Key Drivers
Global Demand: Emerging markets, particularly China and India, will likely drive demand recovery,
though overall growth may be tempered by slower global economic activity.
Supply Constraints: OPEC+ will remain vigilant in managing supply to maintain price stability, while U.S. shale production growth is expected to slow due to cost pressures.
Energy Transition: Accelerating investment in renewable energy could gradually cap long-term demand for fossil fuels.
Bitcoin
Bitcoin’s trajectory in 2025 will be shaped by its evolving status as a digital asset and macroeconom-ic conditions. Increasing institutional adoption and regulatory clarity
are likely to bolster its appeal, though volatility remains a defining characteristic.
Key Drivers
Institutional Adoption: Growing interest from traditional financial institutions could further legitimize Bitcoin as an asset class.
Monetary Policy: Bitcoin could benefit from a weaker U.S. dollar and central bank balance sheet
expansions.
