NEW YORK, NY – While we await key details on policy changes in the US, indications thus far suggest the outlook for 2025 could present big opportunities for investors. The US economy is on strong footing, with growing signs of a pickup in productivity growth as we head into the new year. In their newly released outlook for 2025, BofA Global Research economists and strategists expect US economic and earnings growth to outpace that of other developed economies, while US equities should start the year off strong and end 2025 with the S&P 500 at 6666. Policy changes, including tariffs, tax policy, and the regulatory environment, should have almost as much impact on the rest of the world as they will for the US. As the year progresses, international opportunities should present themselves: European stocks are forecasted to slow but rebound to current levels by year-end 2025, and in China, domestic stimulus measures should offset any slowdown brought on by changes to trade policies.

“In 2024, growth surprised to the upside and inflation moved in the right direction, allowing central banks to start easing, risk assets to perform well, and global equities to reach new highs,” said Candace Browning, head of BofA Global Research. “But as we head into 2025, policy uncertainty has increased substantially. Many of the expected policy shifts should be positive for US equities, but a lot depends on their timing and how the rest of the world responds.”

Key macro calls made for the markets and economy in the year ahead are:

1. Further upside for the S&P and it could come quickly: Head of US Equity Strategy Savita Subramanian expects more than 10% upward potential for the S&P and earnings growth to accelerate to 13% in 2025.
2. Improved US productivity should help economic growth, but policy changes should play a critical role for US and rest of world: Senior US economist Aditya Bhave estimates US GDP growth to come in at 2.4% year-over-year (yoy) in 2025 and 2.1% yoy in 2026, which is above consensus partly due to improved productivity. A new mix of fiscal policies may be more supportive of US economic growth vs the rest of the world.
3. Fed expected to cut twice before pausing; US bond yields should remain in a tight range: In 2025, Bhave and team expect the Federal Reserve to cut interest rates by 25 basis points at its March and June meetings and then pause. Mark Cabana, head of US Rates Strategy, expects a relatively tight trading range for the US 10-year Treasury yield, around 4-4.5%.
4. Key commodity prices, including oil, expected to soften: Francisco Blanch, head of Commodities and Derivatives Research, expects commodity demand growth to weaken, particularly on raw materials. Macro fundamentals suggest markets in 2025 will be oversupplied for oil and grains but more finely balanced for metals. After facing headwinds early in the year, gold should peak at $3,000 per ounce.
5. USD strength through 1H25 but then growth concerns lead to depreciation: Alex Cohen, senior FX strategist, expects the US Dollar to remain strong into the first half of 2025, around which time upside drivers should wane amid a less certain policy and growth outlook.
6. Emerging Markets assets face a short-term risk, then likely improvement: Head of Global Emerging Markets Fixed Income Strategy David Hauner says that uncertainty about US policy is likely to send emerging markets lower, but investors may find a buying opportunity once there is more clarity on trade policy, especially if the US dollar peaks.
7. US Cyclicals should outperform: Subramanian expects cyclical strength in 2025 for a variety of reasons, including the Republican sweep, productivity cycle, decades of underspending in manufacturing and light positioning in cyclicals.
8. Demand for credit remains exceptionally strong: Our Credit Research team expects strong positive total returns for credit in developed markets next year, the third year in a row of strong performance.
9. Expect Chinese growth to weaken but easing to offset tariff impact: Helen Qiao, greater chief China economist and head of Asia Economics, expects real GDP growth for China to decelerate to 4.5% yoy in 2025 and domestic demand stimulus to offset any impact from tariffs with a lag.
10. Euro area equity market to see downside through mid-year, then a recovery. Sebastian Raedler, head of European Equity Strategy, expects 7% downside to the Stoxx 600 followed by a recovery close to current levels.

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