Investors’ Outlook: Winds of change

Winds of change

The American people have spoken, and the mood in the market following Donald Trump’s election as president has set the stage for a dynamic economic outlook as the world approaches 2025.

The decisive red sweep¹ heralds deregulation and tax cuts – measures traditionally favorable for businesses. These policy shifts in the world’s largest economy coincide with a wave of stimulus from the world’s second-largest economy. In their quest to boost domestic growth, the US and China are creating what we anticipate to be a global “risk-on”² market environment.

On top of the help from policymakers around the globe, tech giants have poured over USD 200 billion into artificial intelligence (AI) this year, with executives suggesting this investment spree will continue into next year and may even accelerate³. These corporate spending programs, on a scale reminiscent of the Apollo space program⁴, are set to fuel economic momentum in and of themselves.

At the same time, the potential impact of tariffs on US trade partners has emerged as a concern for investors, particularly regarding their effect on prices and implications for the US Federal Reserve’s easing cycle. While often seen as inflationary, tariffs are inherently deflationary. By increasing costs, they dampen demand, leading to demand destruction – much like how high oil prices curb driving habits. In response, multinationals are poised to prioritize domestic production in the US to minimize tariff risks and ensure smoother operations in a politically charged trade environment. Many companies have already made such strategic adjustments, a legacy of earlier tariff rounds that forced re-evaluations of global supply chains. This trend is poised to funnel more capital into the US economy.

We believe central banks will continue to reduce interest rates, albeit at a more measured pace. Some policies, however, are likely to exert inflationary pressure, such as economic stimulus and tighter labor supply resulting from stricter immigration policies. These are the balancing aspects of the macroeconomic picture next year, with stimulus, corporate strategy, and policy shifts shaping the contours of 2025.

Over in China, policymakers have also been discussing further stimulus. After a series of rate cuts in October, the People’s Bank of China (PBoC) held its key rates steady in November. We believe Beijing is likely to assess the impact of its existing stimulus measures before providing further support.

In this Investors’ Outlook, you can find the details of our outlook for the coming year, our take on equity markets, along with the recent changes to our asset allocation.

The pieces are in place for a new chapter. We’re ready for what comes next.

1. A win by the Republican Party of key political positions across multiple levels of government, including US House of Representatives and the Senate. Red symbolizes the Republican Party.
2. A period when investors are more willing to buy higher-risk assets, like stocks, amid confidence in the economy. 
3. Source: Bloomberg article published November 1, 2024. https://www.bloomberg.com/news/articles/2024-11-01/tech-giants-are-set-to-spend-200-billion-this-year-chasing-ai
4. A NASA initiative that aimed to land humans on the Moon and bring them safely back to Earth, successfully achieving this goal with Apollo 11 in 1969. NASA spent USD 25 billion by the end of the program, which is equivalent to about USD 230 billion today adjusted for inflation. Sources: 1974 NASA authorization: hearings, Ninety-third Congress, first session, on H.R. 4567. Page 1271. https://babel.hathitrust.org/cgi/pt?id=mdp.39015084762718&view=1up&seq=1277; Inflation calculation: https://www.minneapolisfed.org/about-us/monetary-policy/inflation-calculator