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2025 Equity Outlook: Will lower rates and strong earnings be enough to keep markets up?

Melda Mergen
Melda Mergen
Global Head of Equities

Going into 2025, strong company fundamentals and trends in innovation could be outweighed by increased geopolitical risk and policy uncertainty

For equity investors, 2025 is about finding opportunities in a new equilibrium. The macro environment has shifted, with lower rates easing some of the financial pressure on companies and consumers. And while there are always risks to watch out for, our overall thesis hasn’t changed: companies with strong fundamentals that have learned how to weather the challenging operating environment of the past few years will likely continue to lead.

Lower rates are here, which should be good for equities

When the US Federal Reserve started its easing cycle this year, it was an important milestone in the changing landscape for equities. Going forward, the cost of capital for companies will likely be lower, so it is going to be easier to make capital allocation decisions and plan ahead.

One caveat: rates are currently declining because inflation is falling. But if rates begin to get cut to fend off a recession, or inflation reasserts itself, that’s a different story – and an environment which could negatively impact stocks. It is also important to keep in mind that lower rates don’t mean low rates. Interest rates are still high relative to history, so we are looking closely at how companies we invest in are making capital allocation decisions in a higher terminal rate environment.

We are also keeping an eye on the labour market, which is one of the key signals for overall economic health. We are seeing some weakening, but the unemployment rate is still relatively low and there are plenty of new job openings.

Elevated valuations shouldn’t keep investors out of the market

Historically on a price-to-earnings basis equity valuations continue to appear stretched, especially in the US. But we think these valuations are reasonable when you consider that they are being driven by healthy earnings. Investors should also be encouraged by the fact that this earnings strength is coming from a broader-based group of sectors and companies compared with the past few years – moving beyond the narrow scope of the “Magnificent Seven” (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, Tesla).

As we look around the world, there are opportunities to take advantage of attractive valuations outside the US. Most of Europe’s developed-market countries are relatively inexpensive compared with the past 10 years. That is true for China as well. And while cheap versus expensive is generally not an effective investment thesis, it can be a useful data point to challenge investor assumptions and evaluate allocations at the country level.

In the event of a harder landing, bond markets may experience increased volatility. High-quality and longer maturity fixed income securities are likely to benefit in such a scenario, as investors seek save haven assets during periods of economic stress.

The biggest uncertainty is geopolitical risk

If the overriding uncertainty of the past few years was macro-driven, today the primary risk is geopolitical. And it is a risk that will almost certainly stay elevated in 2025. For global companies this means an increasingly difficult operating environment. The overall cost of doing business will likely be higher, and companies will need to be resilient and able to adapt as their operating and market environments continue to shift. More immediately, with the US election and the related noise behind us, investors can shift their focus to potential policy impacts and what that means for their investments and outlook.

Opportunities driven by innovation are expanding across the market

We think 2025 will be another year to stay focused on longer-term growth trends, like artificial intelligence (AI) and energy transition, as well as rapid innovation in sectors like healthcare. As technologies advance and mature, these opportunities continue to evolve. For example, most people think about AI strictly as a “technology” play, but that is only where it starts. Today, AI as an investment theme is really a cross-sector opportunity. Particularly at this stage in its development when we are seeing increased infrastructure spending to integrate AI into business models for almost any kind of business. We are keeping an eye on these bigger growth themes, and we think investors should, too.

Bottom line

Like any other year, we are going to see a mix of risks and opportunities in equity markets. As we head into 2025, investors will continue to question the sustainability of market returns, particularly in the US. Although lower rates, strong earnings and a wave of innovation are creating a favorable backdrop for equities, geopolitical uncertainties and the evolving labour market could elevate the risks of a downturn.

By focusing on companies with solid fundamentals and being open to opportunities beyond the US, investors can navigate this new equilibrium with confidence.

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2025 Equity Outlook: Will lower rates and strong earnings be enough to keep markets up?

Important Information

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). This is a marketing document. This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services.

 

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). This is a marketing document. This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services.

 

The NCREIF Property Index (NPI) is a quarterly, unleveraged composite total return for private commercial real estate properties held for investment purposes only.

 

Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. Real estate investing involves risks, including, without limitation: (i) actual operating results; (ii) interest rates; (iii) availability and costs of financing; (iv) economic and market conditions; (v) date of expected exit; (vi) increases in costs of materials or services beyond projections; (vii) force majeure events (e.g., terrorist attacks, extreme weather conditions, earthquakes, war); (viii) supply/demand imbalances; (ix) currency fluctuations; (x) litigation and disputes relating to investments with joint venture partners or third parties; (xi) changes in zoning and other laws; (xii) inability to obtain necessary licenses and permits; (xiii) competition; and (xiv) changes in tax law and tax treatment and disallowance of tax positions.

 

The value of directly-held property reflects the opinion of valuers and is reviewed periodically. These assets can also be illiquid and significant or persistent redemptions may requite the manager to sell properties at a lower market value adversely affecting the value of your investment.

 

The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be appropriate for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either.

 

Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This is a marketing document. This document and its contents have not been reviewed by any regulatory authority.

 

In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 (Cth) and relies on Class Order 03/1102 in respect of the financial services it provides to wholesale clients in Australia. This document should only be distributed in Australia to “wholesale clients” as defined in Section 761G of the Corporations Act. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.

 

In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.

 

In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.

 

In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO)
No.3281, and a member of Japan Investment Advisers Association and Type II Financial Instruments Firms Association.

 

In the UK: Issued by Threadneedle Asset Management Limited, No. 573204 and/or Columbia Threadneedle Management Limited, No. 517895, both registered in England and Wales and authorised and regulated in the UK by the Financial Conduct Authority.

 

In the EEA: Issued by Threadneedle Management Luxembourg S.A., registered with the Registre de Commerce et des Sociétés (Luxembourg), No. B 110242 and/or Columbia Threadneedle Netherlands B.V., regulated by the Dutch Authority for the Financial Markets (AFM), registered No. 08068841.

 

In Switzerland: Issued by Threadneedle Portfolio Services AG, an unregulated Swiss firm or Columbia Threadneedle Management (Swiss) GmbH, acting as representative office of Columbia Threadneedle Management Limited, authorised and regulated by the Swiss Financial Market Supervisory Authority (FINMA).

 

In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge who meet the regulatory criteria to be classified as a Professional Client or Market Counterparty and no other person should act upon it. This document and its contents and any other information or opinions subsequently supplied or given to you are strictly confidential and for the sole use of those attending the presentation. It may not be reproduced in any form or passed on to any third party without the express written permission of CTIME. By accepting delivery of this presentation, you agree that it is not to be copied or reproduced in whole or in part and that you will not disclose its contents to any other person.

 

Along with Columbia Threadneedle’s in-house Research and Lionstone Research, a variety of sources have been used in the production of this document including, but not exclusively, Oxford Economics, Property Market Analysis, MSCI (www.msci.com/notice-and-disclaimer), Moody’s, CoStar, Federal Reserve Bank of St. Louis.

 

In relation to data and information sourced from or provided by Property Market Analysis LLP, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person any rights or remedies under or by reason of this document. No third party is entitled to rely on any of the statements and/or information contained in this document, and no entity referred to herein assumes any liability to any third party because of any reliance on the statements and/or information contained in this document.
Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

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Important Information

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). This is a marketing document. This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services.

 

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). This is a marketing document. This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services.

 

The NCREIF Property Index (NPI) is a quarterly, unleveraged composite total return for private commercial real estate properties held for investment purposes only.

 

Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. Real estate investing involves risks, including, without limitation: (i) actual operating results; (ii) interest rates; (iii) availability and costs of financing; (iv) economic and market conditions; (v) date of expected exit; (vi) increases in costs of materials or services beyond projections; (vii) force majeure events (e.g., terrorist attacks, extreme weather conditions, earthquakes, war); (viii) supply/demand imbalances; (ix) currency fluctuations; (x) litigation and disputes relating to investments with joint venture partners or third parties; (xi) changes in zoning and other laws; (xii) inability to obtain necessary licenses and permits; (xiii) competition; and (xiv) changes in tax law and tax treatment and disallowance of tax positions.

 

The value of directly-held property reflects the opinion of valuers and is reviewed periodically. These assets can also be illiquid and significant or persistent redemptions may requite the manager to sell properties at a lower market value adversely affecting the value of your investment.

 

The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be appropriate for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either.

 

Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This is a marketing document. This document and its contents have not been reviewed by any regulatory authority.

 

In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 (Cth) and relies on Class Order 03/1102 in respect of the financial services it provides to wholesale clients in Australia. This document should only be distributed in Australia to “wholesale clients” as defined in Section 761G of the Corporations Act. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.

 

In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.

 

In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.

 

In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO)
No.3281, and a member of Japan Investment Advisers Association and Type II Financial Instruments Firms Association.

 

In the UK: Issued by Threadneedle Asset Management Limited, No. 573204 and/or Columbia Threadneedle Management Limited, No. 517895, both registered in England and Wales and authorised and regulated in the UK by the Financial Conduct Authority.

 

In the EEA: Issued by Threadneedle Management Luxembourg S.A., registered with the Registre de Commerce et des Sociétés (Luxembourg), No. B 110242 and/or Columbia Threadneedle Netherlands B.V., regulated by the Dutch Authority for the Financial Markets (AFM), registered No. 08068841.

 

In Switzerland: Issued by Threadneedle Portfolio Services AG, an unregulated Swiss firm or Columbia Threadneedle Management (Swiss) GmbH, acting as representative office of Columbia Threadneedle Management Limited, authorised and regulated by the Swiss Financial Market Supervisory Authority (FINMA).

 

In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge who meet the regulatory criteria to be classified as a Professional Client or Market Counterparty and no other person should act upon it. This document and its contents and any other information or opinions subsequently supplied or given to you are strictly confidential and for the sole use of those attending the presentation. It may not be reproduced in any form or passed on to any third party without the express written permission of CTIME. By accepting delivery of this presentation, you agree that it is not to be copied or reproduced in whole or in part and that you will not disclose its contents to any other person.

 

Along with Columbia Threadneedle’s in-house Research and Lionstone Research, a variety of sources have been used in the production of this document including, but not exclusively, Oxford Economics, Property Market Analysis, MSCI (www.msci.com/notice-and-disclaimer), Moody’s, CoStar, Federal Reserve Bank of St. Louis.

 

In relation to data and information sourced from or provided by Property Market Analysis LLP, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person any rights or remedies under or by reason of this document. No third party is entitled to rely on any of the statements and/or information contained in this document, and no entity referred to herein assumes any liability to any third party because of any reliance on the statements and/or information contained in this document.
Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

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