Market Update: Looking ahead for 2025

Happy new year everyone!

I hope you all had a fabulous break. For those of you who might be new to my market updates, every other Wednesday I send out a summary of the financial news, regulation updates and any other factors that I think will be useful for you when managing your personal finances.

2024, was a challenging year across the board with numerous elections across the globe, central banks battling (and appearing to momentarily win) with inflation, a landslide Labour victory in our UK general election, the UK announced its first ever female chancellor, Rachel Reeves who delivered her first Autumn budget and to finish off the year we saw Donald Trump elected back into the White House. Quite the year. Yet, despite all the noise and speculation markets remained relatively resilient and, in some areas, we saw record highs. Technology and the US were some of the major winners for 2024, as well as other emerging markets such as India. It was the resilience that highlights to us that opportunity really can emerge in the most challenging of circumstances.

Now, I don’t know about you, but personally I am completely exhausted by the doom and gloom that has been dominating our conversation and news flow for far too long. I have entered 2025 with a lot of optimism (unsurprising probably to those of you who know me well!) and a desire to get things done, and from the first few days back in the office I am sensing that lots of you have come back ready to tackle the year head on. So, this in mind, let’s hold on to that word ‘resilience’ and remember history has shown us opportunity can be hiding in the most unsuspecting of places.

Another one of my key themes I kept banging on about last year was having the confidence to just get started, no matter how small. The repetition of the smallest acts really can have a great impact over time. So, let’s all try not to fall into the same traps as every January that are laid before us, millions of new years resolutions and goals to become better with your finances that drop away by the end of the month. Together let’s create new habits in 2025 and my mission is to give you the confidence to be bold with the financial decisions that you are making!

So here goes…

The Global Growth Picture

As we step into 2025, there are two major uncertainties which are dominating the global economic outlook. First, how far will US President- Donald Trump go in turning his campaign promises into actual policies? Second, can China successfully reignite its economy while managing a controlled slowdown?

We believe Trump is unlikely to fully deliver on bold promises like steep tariff hikes, widespread deportations, and sweeping tax cuts. However, even partial implementation of these policies could meaningfully influence to US growth into 2026. China’s trajectory, meanwhile, appears steadier. Ongoing policy support should allow the country to maintain a managed deceleration in growth over the next two years. Together, these assumptions point to global growth holding steady at 3.2% in 2025, before softening slightly to 2.9% in 2026.

Since starting to work in finance nearly ten years ago, the one thing I have learnt is that there is always something around the corner that creates a level of uncertainty when it comes to investing. Now of course we need to be mindful of these things, but it is also important to ensure this doesn’t stop you from moving forwards, the key is to remain diversified and ensure that you are not overexposed to one area of the market.

Could US Equities Lead the Way?

Trump’s policies, particularly corporate tax cuts and deregulation, create a supportive backdrop for US equities. Sectors like technology, automation, and artificial intelligence (AI) are set to drive growth, as earnings momentum in these areas remains strong. In 2024, nearly half of the market’s earnings growth came from the information technology and communications sectors.

While the US continues to lead, the outlook for other regions is mixed. Emerging markets could struggle with tariff disputes and a stronger dollar, while Europe, though growing at a slower pace, offers attractive valuations for selective investors.

But remember US equities are already riding off the back of a tremendous year in 2024, there valuations are at an all-time high making it hard for investors to get into the market. We are all guilty of wanting to pile in when markets are at an all-time high, I would argue there is opportunity elsewhere in the markets which is currently looking a little undervalued and shouldn’t be overlooked.

Investment Focus

There is no doubt that AI and technological advancements will continue to be a theme for 2025 and technologies that are focused on robotics and automation will likely do well in this current market.

Another area I think is very interesting currently is infrastructure, with many new governments starting out around the world having been elected to office, public spending is high on the agenda and could present opportunities around the world. UK housing and the drive by Labour to get us building again could be an example of this moving forwards.

Fixed Income Benefits from Lower Rates

Low interest rates continue to provide a solid foundation for fixed income investments. Credit markets—especially high yield and investment-grade bonds—offer attractive income opportunities, supported by strong corporate balance sheets.

Short-duration credit strategies are particularly appealing in the US and Europe, where the combination of healthy fundamentals and favorable yields creates a compelling risk-reward profile. For European fixed income investors, total return strategies focusing on euro credit markets look increasingly attractive, especially on a currency-hedged basis.

Sustainability: A Long-Term Growth Driver

Despite the political shift in the US, sustainability remains a major investment theme in 2025. The global transition toward net-zero emissions continues to unlock significant opportunities. Carbon transition strategies, which align portfolios with decarbonisation goals, and green bonds, which are gaining broader adoption across diversified portfolios, are at the forefront of this trend.

An emerging area is biodiversity-focused investments, which aim to support the preservation and restoration of ecosystems. While this is a newer space, its rapid growth highlights the increasing importance of aligning capital with positive environmental outcomes.

Fed Projections and Inflation Dynamics

The Federal Reserve’s December 2024 meeting marked a notable shift in expectations for 2025. Policymakers now anticipate a slower pace of rate cuts—just two quarter-point reductions compared to four previously forecasted. This reflects a response to stronger-than-expected economic growth and persistent inflation pressures.

Inflation forecasts for 2025 have also been revised upward, with the Fed’s preferred Personal Consumption Expenditure (PCE) inflation measure now projected at 2.5%, up from 2.2%. This highlights the importance of closely monitoring monetary policy and its implications for financial markets.

Striking the Right Balance

In 2025, investment success will depend on navigating a complex landscape of opportunities and risks. Whether capitalising on US equity growth, locking in attractive yields in credit markets, or aligning with long-term sustainability trends, thoughtful planning will be key. Resilience, diversification, and a focus on cash flow will help investors make the most of what promises to be an eventful year ahead.

To close our first market update of 2025, the road ahead is not guaranteed nor is it without challenge, but I hope, like me, you can remain focused on your own personal goals and objectives for this year. Remember that small repetitive actions have big impacts over time and that opportunities can be found in the most unusual of places.