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Investing During Transition
2025 Global Market Outlook
The world is transitioning at a pace and scale rarely seen before. Radical innovations in AI and healthcare. Elevated geopolitical tensions, including the raised possibility of tariffs following the US election. A potential slowdown in global growth. Times like these demand actionable insights and the skill of active management. Here’s what to know to navigate the shifts and opportunities ahead.
Global Economy
Mapping the path from slowdown to recovery
There is strong potential for a slowdown in global growth in early 2025. But central banks are poised to respond with rapid rate cuts, paving the way for a fast recovery. We expect a shift from services to manufacturing—the result of a global push towards renewable energy and the rise of AI. These factors are, in part, fueling infrastructure spending.
Key takeaway
A recovery in the second half of the year will likely hasten the transition to manufacturing-led growth.
US Economy
US exceptionalism has not run out of steam
The US economy is set for another year of growth, bolstered by investments in AI. Fiscal policies and coordinated monetary easing support this outlook. Job creation will likely slow as companies have front-loaded hiring, but unemployment is expected to remain low. Improving productivity should also provide another boost to growth.
Key takeaway
Despite a slowing jobs market, supportive monetary policy and improving productivity should keep the US economy out of recession.
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Estimated earnings per share of value stocks set to outstrip growth stocks later this year
Read the full Global Market Outlook end of year update
Global Equities
Value and small caps could power international equities
As we emerge from a period dominated by U.S. tech, international equities may offer breadth and room for growth. Diversifying into areas that have valuation support and robust fundamentals, such as value and small cap stocks, seems prudent. Japan, Korea, and the United Kingdom could also benefit from structural changes.
Key takeaway
We anticipate a broadening opportunity set that favors international markets, particularly value and small cap stocks.
INT CHART FIG 3
US Equities
Rate cuts provide opportunities for US small caps and financials
Themes driving the bulk of U.S. equity returns in 2024 may unwind in 2025. Bottom line: We see a broadening opportunity set in equity markets. Small caps should benefit from further interest rate cuts and any signs of an improving economy. Underappreciated sectors like energy, financials, and industrials could also offer opportunities, signaling a stock-pickers' market.
Key takeaway
Trends that dominated U.S. equities in 2024 may fade in 2025, but this will likely expand the opportunity set.
INT CHART FIG 4
Read the full Global Market Outlook end of year update
Fixed Income
Finding income in high yield bonds, bank loans, and emerging markets
Bond yields have been on a roller coaster ride as markets have tried to anticipate shifts in central bank policies. Given current market pricing, this implies upside risk to yields. Where to focus: Cash yields remain attractive, but longer duration fixed income is vulnerable. High-yield bonds and bank loans are best positioned for yield, while emerging market bonds also present favorable income prospects.
Key takeaway
Noninvestment-grade sectors and emerging market bonds offer attractive yield opportunities even if government bond yields decrease.
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Private Markets
Weaker growth, lower rates set to open up private markets
Evolving economic and market conditions could expand opportunities for private market investors. Private credit will cater to complex financing needs, while potential IPOs and increased M&A activity, driven by lower interest rates, may offer liquidity avenues for private equity investors.
Key takeaway
A more challenging economic environment and the Fed’s rate‑cutting cycle will open up opportunities for private market investors in 2025.
Healthcare
Radical innovations are driving a healthcare revolution
A wave of innovation is transforming the health care sector’s prospects. And not just in GLP-1s. Technological developments are leading breakthroughs in AI-led cancer screening and robotic surgery. Therapeutic breakthroughs could have major impacts. A return to lower rates and inventory normalization may also bring a timely boost for the sector.
Key takeaway
A new generation of treatments and technologies are paving the way for what could be a golden age in healthcare.
Artificial Intelligence
AI’s “easy money” era is over, but rich opportunities remain
The launch of ChatGPT ignited a surge in AI stocks. While the initial rapid growth phase may be over, AI remains a powerful productivity enhancer for the global economy. What does that mean for investors? Transitioning to AI’s next investment phase. Innovative “linchpin” companies—with strong fundamentals—offer strongest growth prospects.
Key takeaway
Investors seeking to navigate the next phase of the AI investment cycle should look for key tech firms that are innovating within growth markets.
2024 Tactical allocation views
As of 31 May, 2024
Investment professionals from the T. Rowe Price Multi-Asset Division presents their views on the relative attractiveness of asset classes and subclasses over next 6 to 18 months.
Earnings continue to strengthen, but face elevated expectations. Potential for broader market participation as economic growth improves, commodity prices increase, and consumer spending remains resilient.
Yields remain attractive but volatility could persist due to global divergence in growth, inflation, and central bank expectations. Credit fundamentals remain supportive; however, spreads remain tight.
Continues to offer attractive yields as the yield curve remains inverted, and continues to offer liquidity should market opportunities arise.
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Each month, our Investment Committee prepare a report revealing the two market themes they are watching, their bull and bear views per region and their latest asset class over and underweights.
It has been designed to aid you in your decision making and client conversations.