Wall Street’s predictions are usually dominated by standard forecasts about growth and inflation. But for 2025, there’s one factor no one can ignore — and it’s anything but boring.
Donald J. Trump’s return to the White House is front and center in investment outlooks from major banks and asset managers. His pro-business policies are sparking optimism, especially for Corporate America and US markets. But it’s not all smooth sailing — his hardline stance on global trade is raising eyebrows, and his unpredictable nature has plenty of experts feeling uneasy.
For this research, I scanned the market outlooks of leading investment banks, including Black Rock, BNY Mellon, Apollo, Jefferies, and more. You will also find links to the reports for your convenience.
According to the leading US and European investment houses, the future for 2025 looks rosy. However, two potential headwinds exist: A potential AI asset bubble and an inflation-stoking trade war.
2025 could be a wild ride — and Wall Street is bracing itself.
US Versus Global Economies
With the so-called Red Wave in US politics, a new era characterized by business-friendly and less regulated environments is expected to benefit American markets significantly. In contrast, there is little confidence in a European economic recovery, and China faces challenges in managing its slowdown.
- BNY Mellon Wealth: “We expect to see the economy slow modestly before a renewal of activity ensues as the economy benefits from a further moderation of inflation and lower interest rates. We expect US growth for 2025 to range from 1.5% to 2.5%, in line with trend growth, marking the fastest growth rate among developed economies.”
America First
Lower interest rates and growth-oriented policies contribute to a moderate global economic expansion, with the United States at the forefront. The uncertainty of the new American government presents risks, yet Wall Street maintains a measured optimism about generating solid returns.
The US economy is gearing up for another surge, driven by renewed momentum under Trump and capitalizing on the diminishing appeal of other major markets. Many of these markets may face challenges, including the impact of Trump’s tariffs, creating a unique opportunity for the US to shine. According to JPMorgan Chase & Co., this is shaping up to be a world “where US exceptionalism gets reinforced.” Buckle up—America is poised to lead the way once again.
- BlackRock Investment: “We are staying pro-risk. The US is still standing out compared to other developed markets thanks to stronger growth and its ability to better capitalize on mega forces. We up our overweight to US equities and see the AI theme broadening out.”
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Inflation Dynamics: Stable but Persistent
Policy measures that may raise trade barriers and take a firm stance on immigration could increase inflationary pressures, with the Federal Reserve attempting to maintain price stability. Despite these forces, inflation, both domestically and internationally, remains within a controlled range compared to past years.
- Apollo Global: “We believe it will take longer than expected for the Fed to travel the last mile toward its inflation goal. We expect the Consumer Price Index and Core Personal Consumption Expenditure Price Index to come in at 2.4% and 2.3%, respectively, in 2025.”
Monetary Strategies: Limited US Rate Cuts
Inflation-driving policies might restrict the Federal Reserve’s capacity to reduce rates, resulting in fewer cuts than initially anticipated. Due to these constraints, the expected terminal rate may be higher, while Europe is projected to adopt a more accommodative monetary stance, unlike Japan’s approach.
- Deutsche Bank: “The US policy mix will stall progress on inflation, with core PCE expected to remain at or above 2.5% over the next two years, leading the Fed to halt their rate cuts. We now see the fed funds rate at 4.375% by year-end 2025.”
Financial Policies: Streamlining Taxes and Regulations
Concern over the sustainability of global government expenditures persists, yet significant fiscal tightening is not expected. Optimism regarding the economic boost from US tax reductions offsets concerns about their potential drawbacks.
- Jefferies: “We believe that current market concerns over Trump’s fiscal expansion and tariff impact are exaggerated. We do see US fiscal deficits moving higher, but we believe that the fiscal policies will not be as negative as the market fears. Similarly, on tariffs, we see them more as a bargaining tool for Trump and do not think they would have as negative growth impact as is currently feared.”
Strategic Tariffs: Calculated Application
While the anticipation of new tariffs is universal, some view the aggressive trade stance as more of a negotiation tactic. The actual implementation of trade barriers could be more selective and less severe than predicted worst-case scenarios.
- Citi: “With respect to Trump policies, the base case of our global team is tariffs, an extension of the 2017 Trump tax cuts, a sharp curb in immigration inflows, a broad deregulation of Biden-era requirements, and a potential boost to animal spirits.”
Expanding Equities: Diversification of Stock Market Gains
The ongoing stock market rally, initially driven by leading tech giants, is anticipated to extend. Mid- and small-cap stocks in the US hold promise, although they may not replicate recent superior performance. Meanwhile, undervalued international equities could present attractive investment opportunities.
- Deutsche Bank: “Our equity strategists have been consistently and successfully bullish over the last decade, and they remain confident for 2025 with an S&P 500 target of 7,000. Gains have been seen in Europe, too, as they believe the risks are priced in.”
Precious Metals: A Spotlight on Gold
Opinions diverge on gold’s potential to maintain its appeal, yet its status as a hedge against an unpredictable macroeconomic environment is recognized. The advancement of technological infrastructure, particularly in data centers and power plants, may bolster the demand for base metals, even as enthusiasm for oil wanes.
- BNP Paribas: “A stronger dollar and an on-hold Fed will keep a lid on gold prices into the second half, in our view, after hitting new highs in early 2025.”
Diversified Portfolios: Expanding Beyond Traditional Assets
With optimism surrounding US economic opportunities, investors are increasingly drawn to diversification, utilizing alternative assets in private markets and hedge funds. This strategy seeks to leverage falling interest rates and high public asset valuations to achieve better-diversified returns.
Embracing AI’s Impact
The rise of artificial intelligence is poised to be a dual engine for economic gains, driven by increased productivity from adopting AI technologies and substantial investments in the necessary infrastructure for their implementation.
- Capital Group: “AI may be overhyped and bigger than you think. The so-called hyperscalers — Alphabet, Amazon, Meta, and Microsoft — are spending about half of their capex budget on technology and half on buying land, constructing as many data centers as possible near reliable power, and locking in long-term contracts with energy suppliers. That should provide an investment opportunity for years.”
Economic Perils: The Threat of Trade Conflicts
Potential risks include the collapse of an AI-driven market bubble and bond market instability due to government fiscal irresponsibility. However, the most significant threat remains the possibility of intensifying trade disputes, which could provoke retaliatory measures and impede global economic growth.
- Charles Schwab: “A trade war could pose the biggest risk to global growth in 2025. President-elect Trump initially threatened 60% tariffs on all Chinese imports and 10-20% tariffs on imports from all other countries. Taken at face value, this would calculate tariffs increasing to the highest level in over 100 years.”
