Policy rate cuts, a cyclical recovery and tax cuts are a positive mix for equity markets in the short to medium term. In the longer term, the prospect of a trade war, renewed fears about the sustainability of public debt and the level of valuations will pose risks to the equity rally.
Earnings growth in 2025 for US large caps and the big Tech is 15% and 23%, respectively. These figures are ambitious, but in line with our baseline economic scenario.
After the rally of 2024, equity valuations are expensive, particularly in the US, where the risk premium is low. Therefore, these equity valuations are not expected to provide long-term support. However, valuations are not a leading indicator of short-term performance and can remain at higher levels when economic fundamentals are solid, and market liquidity is high.
We continue to favour small and mid-caps. These companies are well positioned to benefit from future economic policies and tax initiatives in the United States, as well as from the early-cycle recovery scenario. Greater exposure to cyclical sectors is also warranted, as well as increased exposure to value stocks.
Discover our Outlook 2025.
