Wall Street Braces for Trump, AI, and China

You may be interested

Original image photographer: Chip Somodevilla/Getty Images

You are watching: Wall Street Braces for Trump, AI, and China

By Sam Potter January 1, 2025

Wall Street predictions for the year ahead are usually defined by expectations for growth, inflation and other dull-but-worthy economic indicators. For 2025, those are all overshadowed by a person — and he is anything but dull.

The return of Donald J. Trump to the White House dominates this year’s crop of investment outlooks published by the world’s major banks, advisers and asset managers. Overall, his anticipated pro-business policies are fueling a sense of optimism, particularly when it comes to Corporate America and US assets. Yet his tough talk on global trade is also creating nervousness, while his general unpredictability has many prognosticators on edge.

To welcome 2025, Bloomberg News has collated over 700 key calls from more than 50 leading financial institutions, presenting them here for easy analysis and comparison. In them, readers will find an unusual degree of consensus across a range of topics.

Join Bloomberg Markets in a Live Q&A today at 11:15 a.m. ET for more on stock market predictions and answers to reader questions.

The US economy and assets are once again expected to power ahead, enjoying new momentum from Trump and benefitting from the comparative lack of appeal of other major markets, many of which could be hit by his tariffs. This will be a world, says JPMorgan Chase & Co., “where US exceptionalism gets reinforced.”

Inflation is seen as broadly contained, albeit unlikely to fall to target as Trump throws up trade barriers and takes a hard line on immigration. “It will take longer than expected for the Fed to travel the last mile toward its inflation goal,” Apollo Global Management says. It’s one of multiple firms that think interest rates will be cut more slowly than currently priced by the market.

Pretty much every institution warns investors not to expect another year of equity returns topping 20%, just like they did a year ago. But few are ready to call an end to the artificial intelligence-fueled stock boom. BNY Mellon Wealth Management believes “AI’s role in the world will surpass that of other technologies that propelled earlier periods of tidal change.” While no one else quite matches that bullishness, many expect gains to broaden as adoption of the tech spreads.

And it may not be a “year of the bond,” given current tight pricing and ongoing worries about excessive government borrowing. But starting yields across both rates and credit are solid, and many firms would agree with the sentiment captured by Schroders: “The old-fashioned reason for owning bonds — to generate income — is back.”

Meanwhile, with lower returns expected from key assets like stocks and so much uncertainty surrounding Trump and US policy, diversification is the name of the game, Wall Street reckons. Look to alternative assets like private markets and hedge funds, firms say. And of course, many urge you to rely on your trusty professional money manager to help navigate this complex landscape.

From Trump 2.0 to wildly expensive US assets to the lurking threat of bond vigilantes, this is what the finance world’s best and brightest see in the year ahead.

Base Cases: America First (Again)

Lower rates and pro-growth policies should support a modest global expansion with the US largely leading the way. Risks abound — not least the unpredictability of the new American administration — but solid, not exceptional, returns are the base case for most of Wall Street. Call it cautious optimism.

Scroll through the calls 👆

Growth: US Versus the World

The so-called Red Sweep of US government is expected to kick off a pro-business, regulation-light era that gives American activity a boost. Confidence in a European revival is low, while China is seen struggling to manage an ongoing deceleration.

Inflation: Contained, Not Killed

Trump’s potential barriers to trade and aggressive approach to immigration are seen as fresh fuel for inflation, with the Federal Reserve struggling to bring price growth down to target. Still, inflation is generally seen as contained and range-bound both in the US and abroad, compared to recent years.

Monetary Policy: Fewer US Cuts

Trump’s potentially inflationary policies may limit the Fed’s room for maneuver, leading to fewer rate cuts than anticipated and a higher-than-expected terminal rate. The Bank of England faces similar heacaches. Europe is expected to lean dovish with mutliple cuts. Japan is the only major bank raising rates.

Fiscal Policy: Cutting Tax and Tape

The sustainability of government spending around the world is a key concern, but no one is expecting countries to rein it in. Any worries about Trump-led tax cuts in the US are cancelled out by optimism over their potential boost to growth.

Tariffs: Tactical Awareness

While everyone agrees new tariffs are on the way, some consider Trump’s tough talk a negotiating tactic, and expect actual trade barriers to be highly targeted and less aggressive than the worst-case scenario. China will bear the brunt.

Stocks: Broadening Out

Wall Street is looking for the stock rally driven by the tech megacaps to broaden. That means a boost for mid- and small-cap equities in the US, which remains most firms’ preferred market, even if it won’t match recent returns. Cheap-looking international companies may offer bargains.

Bonds: All About Income

It’s a mixed bag, with more rates volatility expected and the potential for higher Treasury yields. Still, Wall Street sees fixed income as a key source of income, with relatively attractive yields. Almost everyone says get out of cash.

Credit: Pricey But With Potential

Corporate debt looks priced to perfection, meaning risks are arguably tilted to the downside. But yields are solid, central banks are cutting rates and default risks seen as relatively low. Many firms prefer credit to government bonds as a source of income.

Commodities: Going for Gold

Wall Street is split on whether gold can continue to shine, though bulls see it as a good hedge for the unpredictable macro backdrop. Improving growth and the build out of tech infrastructure (data centers, power plants) could boost base metals. No one is particularly bullish on oil.

Currencies: Dominant Dollar

See more : S&P 500’s 2024 rally shocked forecasters expecting it to fizzle

The dollar is looking pricey, but on balance Wall Street sees more strength for the greenback in the near term as Trump policies come into play. Several institutions are predicting parity with the euro.

Alt. Assets: Private Markets Rule

In an era of falling rates, high public asset valuations and rising dispersion in performance, Wall Street is touting both private markets and hedge funds as potential sources of diversification and returns.

Multi-Asset: Diversify

Optimism for all things US meets richly priced assets and an unpredictable new era. There’s no escaping the gravity of American assets, but Wall Street is also looking for diversification, eying hedges and cautiously seeking opportunities abroad.

AI: Long Live the Revolution

Artificial intelligence is a potential double-driver of returns, as adoption of the technology brings new productivity gains, and as corporations and governments invest heavily in the infrastructure needed to power the revolution.

Risks: Trade War II

A bursting of the AI bubble and bond investors losing patience with profligate governments are among the big Wall Street worries. But the largest by far is that Trump goes harder than expected with tariffs, triggering retaliation and hammering world growth.

Source link https://www.bloomberg.com/graphics/2025-investment-outlooks/

Source: https://incomestatements.info
Category: News