Gold and stock markets ended 2024 on a high note, offering a promising outlook for 2025.
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Let's dive into the investment scene for the approaching year! Here's a sneak peek of what Daniel Winkler, Multi Asset Strategist at Lampe AM, expects in the stock, bond, and gold markets in 2025, especially focusing on the US and Europe.
Stock Markets Outlook
2024 was a humdinger for stocks and gold, yet the stock market rally faltered at the year's end due to waning hopes for interest rate cuts. For the new year, we're optimistic about positive capital gains, though they might not reach the heights of 2024 given the inflated stock valuations and the mountain of risks ahead. Compared to the tranquil 2024, we foresee more bumps along the road in 2025. As ever, the drivers will be central bank policies and corporate earnings.
For our strategic asset allocation, we're maintaining our slight overweight in stocks and favoring the USA over Europe and emerging markets. In terms of bonds, we're keeping duration neutral, despite lingering concerns about inflation and unsustainable fiscal policies.
Bond Market Prospects
The bond market forecast for the coming months is a mixed bag. In the US, we see potential for yields on short-term bonds dropping as further rate cuts by the Fed materialize. For 10-year US yields, we're bracing for increased volatility at higher levels at the start of the year. EZB rate cuts are likely priced in, and we anticipate a return of Eurozone bond investors, drawn by the allure of higher US yields, after their 2025 focus on EZB policy.
European bonds might face headwinds from inflation risks and unsustainable fiscal policies. Therefore, we predict choppy waters for this market.
US Stocks: The Bets are On
We're keeping the faith in the US market over Europe, thanks to its rosy economic forecasts, prospects for tax cuts, and heavy investments in AI infrastructure. This combination could enable actual corporate earnings in the coming quarters to align with the sunny forecasts of equity analysts. The current sector composition of US indices offers a promising hand for the uncertain environment.
In comparison, Europe faces more challenges. Domestic growth is sluggish, and many companies suffered from weak Chinese demand in 2024. Based on our economists' GDP predictions, we estimate that companies listed in the Stoxx Europe 600 could increase their earnings by 6-8% in 2025 compared to 2024, thanks to higher sales growth and improving margins. The low relative valuation compared to US stocks suggests that many negative factors have already been accounted for. A catalyst is needed to unlock this hidden potential during the year. This could be initial steps towards a ceasefire in Ukraine or a recovery in Chinese consumer demand, thus piquing market participants' interest in Europe.
Gold Shines with Limited Luster
In the coming year, we believe falling real yields could offer a helping hand for gold prices. Central banks actively boosting their gold reserves and an unpredictable world could continue as positive drivers of gold prices in 2025.
[1] Economic Challenges: Germany faces economic challenges, including a weakening economy and potential recession risks. Defensive spending is seen as beneficial for certain sectors, such as defense companies like Rheinmetall. Despite these challenges, European markets demonstrate resilience, with financial and industrial stocks contributing to equity gains.
- To navigate through these economic challenges, individuals might consider personal-finance strategies that incorporate diversified investing, including finance in defense companies like Rheinmetall, to mitigate risks in this uncertain business environment.
- For those seeking to improve their personal-finance situation, understanding the predicted trends in the stock markets, such as the optimistic outlook for the US market and the ongoing growth potential in the investing sector, might prove valuable in making informed decisions for their business investments.
