How will financial markets evolve in 2025? Will Wall Street continue to set its infernal pace? What will be the consequences of Donald Trump’s policies? What can we expect from Europe? Through this paper, we try to get a general idea of what could happen next year.
While there is still a good month before we move into the new year, the stock market results for 2024 are rather fragmented so far. In the United States, the indices have almost only risen since September 2022. This year, they have even accelerated: the S&P 500 gains more than 25% in 2024 – one of the most prolific years of this century – and even 45 % since November 2023. It’s mind-blowing.
Elsewhere in the world, the situation is generally more mixed. Let’s take Europe first. The Old Continent is lagging behind even if the Stoxx Europe 600 has gained 6% since January 1st. The CAC 40 drops more than 5%. In Asia, caution reigns: China is struggling to attract investors despite a few leaps and bounds that have accompanied Beijing’s declarations to support its economy. For the concrete effects, we will still have to wait.
Europe and the United States have not quite taken the same path in 2024 (source: Zonebourse)
In 2025, what will change with Donald Trump?
Starting next January, Donald Trump will return to business with the desire to impose massive customs duties on imports, restore American protectionism and support his country’s businesses. For the United States, this program could lead to a general rise in prices to the extent that customs tariffs risk being passed on to the consumer. To combat this inflation, monetary policy will not become completely accommodating again. The Fed will continue to make macroeconomic news: it will have to find the right balance so as not to paralyze the economy.
However, persistently high inflation should not prevent the United States from experiencing a year of strong growth. Trump wants to favor American businesses with a reduction in corporate taxes to 15%, compared to the current 21%. Bank of America estimates that this would allow earnings per share of S&P 500 companies to automatically increase by 4%. He also wants to ease regulations to boost investment and help SMEs.
In other developed economies, the trajectory of rate cuts is expected to continue. There is no valid reason to reverse the trend as inflation is well controlled. This interest rate differential situation could favorably help the Dollar. At the same time, if the United States imports less, its trade balance should improve, which would accentuate the strengthening of the Dollar.
Global but fragmented growth
Economists agree that in 2025, developed countries have a good chance of avoiding a new recession and confirming their resilience from this year. However, the dynamism is not the same everywhere. China for example: the country faced a collapse in the consumption of its middle class. Companies in the luxury sector have directly paid the price. At the same time, Beijing lacks firmness in its recovery measures. Several times, investors have hoped that public authorities would provide concrete support for consumption. But for the moment, the measures are still awaited. So much of China’s growth will depend on Beijing’s willingness to be bold again to support its next phase of growth.
In Europe, Germany and France are moving backwards, penalized by the socio-political context, budgetary rigor, the slow change towards sectors of the future and the internal problems specific to certain strong sectors such as luxury in France and automobile industry in Germany. 2025 will be an election year for Germany, which could bring its share of additional uncertainties. Elsewhere on the continent, such as in Switzerland and the Scandinavian countries, the general climate seems healthier with companies able to be more resilient and equipped with strong innovation capabilities.
The major trends that will (probably) do well
The major themes that have driven the markets higher for two years still have strong winds in the future. Artificial intelligence is rapidly emerging: the strength of the company’s income statement Nvidia is enough to show the dynamism of this market.
Defense should still benefit from innovation, growth and investment by States after several decades of underinvestment. The main risk for the sector would be a lull in the conflicts in Ukraine and the Middle East. However, a reduction in geopolitical tensions would also be good news for the markets in general.
American banks could be among the big winners from the return of Donald Trump. Already, from an economic cycle point of view: a more accommodating monetary policy could make banks less profitable but lending activity should accelerate sharply. On the other hand, Trump wants to relax regulations in the sector.
In the oil and gas industry, Donald Trump wants to “drill at all costs”, in other words, produce at full capacity to lower energy prices and establish the United States’ global energy dominance. It also aims to remove environmental regulations to facilitate the exploitation of new deposits and give freedom to the majors. The main consequence of this policy should be a generalized drop in the prices of fossil fuels while companies in the sector do not want to reduce their margins and sell their production at a discount. They also fear that this effect will be amplified by lower global growth, caused by the refocusing of countries on their domestic policies. However, in the longer term, fossil fuels could regain momentum compared to alternative energies.
“Trump dependent” markets
It will not have escaped your notice, the return of Donald Trump to the White House will impact all financial markets with a series of measures in the United States which include in particular an increase in customs tariffs, a desire to strengthen national policy and a general relaxation of restrictions. This program is generally favorable to American stocks. According to the median forecast (collected by Reuters) of several strategists, analysts, brokers and portfolio managers, the S&P 500 will end 2025 at 6,500 points. These specialists do not say they are concerned about valuations as profits are expected to increase by 14.2% next year compared to 10.2% this year.
Elsewhere in the world, it will be appropriate to be more selective by favoring countries where the socio-political-economic climate still offers favorable visibility. We are thinking in particular of Switzerland, the Scandinavian countries, to a lesser extent the United Kingdom and even southern economies such as Spain and Portugal. Asia still remains too influenced by China, which does not provide concrete answers to investors’ questions.
