{"id":20390,"date":"2024-12-05T09:15:49","date_gmt":"2024-12-05T14:15:49","guid":{"rendered":"https:\/\/www.rbcwealthmanagement.com\/en-us\/?post_type=rbcwm_newsroom&p=20390"},"modified":"2024-12-05T09:15:50","modified_gmt":"2024-12-05T14:15:50","slug":"complex-equities-landscape-potential-fed-policy-shifts-likely-in-2025-rbc-wealth-management-suggests","status":"publish","type":"rbcwm_newsroom","link":"https:\/\/www.rbcwealthmanagement.com\/en-us\/newsroom\/2024-12-05\/complex-equities-landscape-potential-fed-policy-shifts-likely-in-2025-rbc-wealth-management-suggests","title":{"rendered":"Complex equities landscape, potential Fed policy shifts likely in 2025, RBC Wealth Management suggests"},"content":{"rendered":"\n

MINNEAPOLIS (December 5, 2024)<\/strong> \u2013 The global equity markets rally over the past two years may continue into 2025 but requires positive economic growth and rosy corporate earnings seasons to make that happen, RBC Wealth Management suggests in its Global Insight 2025 Outlook<\/a> released Thursday. \u00a0<\/p>\n\n\n\n

Investors in U.S. equities will need to be nimble and keep return expectations in check given the complex investment environment and potential geopolitical risks. The U.S. Federal Reserve\u2019s rate-cut cycle is anticipated to continue into Q1 before pausing at a policy rate around 4.25%, keeping yields across the fixed income landscape well above historical averages.<\/p>\n\n\n\n

And although there\u2019s little to no evidence that Washington policies are key drivers for market returns over time, tariff unknowns from the Trump administration and Republican-controlled Congress \u2013 including how various trade partners will respond \u2013 complicate industry and stock selections.<\/p>\n\n\n\n

\u201cThe market will potentially need to contend with the most aggressive tariff policies in almost 100 years,\u201d said Kelly Bogdanova, vice president and portfolio analyst at RBC Wealth Management\u2013U.S. \u201cThis makes the Fed\u2019s job of forecasting inflation and GDP growth, and properly calibrating interest rates, more complex.\u201d<\/p>\n\n\n\n

U.S. equities: Volatility and opportunities expected<\/strong><\/h3>\n\n\n\n

The S&P 500 rose 68% over the past 25 months, propelled by AI-driven optimism and monetary easing. However, already-stretched valuations and increasingly frothy investor sentiment now call for vigilant positioning in portfolios.<\/p>\n\n\n\n

Some of the unusual complexities in 2025, such as tariff policy changes, could also impact equity performance and generate volatility while still opening opportunities. RBC Wealth Management believes the 14.6% year-over-year consensus earnings growth estimate seems too robust. It would take 2.3% or better GDP growth to achieve that and would need more than just tech-oriented stocks to the carry the load.<\/p>\n\n\n\n

\u201cWe recommend starting the year without major sector overweights,\u201d Bogdanova said. \u201cWe think the market will provide opportunities to take advantage of sector and industry dislocations in 2025.\u201d<\/p>\n\n\n\n

U.S. fixed income: Rate cuts, but could a hike be on the table?<\/strong><\/h3>\n\n\n\n

Yields across the fixed income landscape are likely to remain well above the historical average.<\/p>\n\n\n\n

Economic optimism has pushed credit market valuations to extremely rich levels, while fewer rate cuts in the pipeline will likely increase the shelf life of cash and short-duration securities to offer attractive income. Despite this, we think the strategy for 2025 will be gradually increasing duration and reducing credit risk exposures.<\/p>\n\n\n\n

\u201cWhile we expect rate reductions through the first quarter of 2025 and then a pause, the pro-growth policies being proposed risk overheating the economy and fueling renewed inflationary pressures, potentially posing a remote chance that the Fed pivots back to rate hikes,\u201d noted Tom Garretson, fixed income senior portfolio strategist at RBC Wealth Management – U.S.<\/p>\n\n\n\n

The “Unstoppables” \u2013 Long-term secular trends<\/strong><\/h3>\n\n\n\n

Four transformative forces, coined the \u201cUnstoppables,” are set to redefine the investment landscape:<\/p>\n\n\n\n