Opportunities: America first? When it comes to equities, we’re saying yes
It is too early to prepare for Trump 2.0. But we do see opportunities in US equities. In Europe, we’re looking at high-quality bonds.
Balancing opportunities and risks is crucial for achieving good returns. While taking on too much risk could negatively impact your investment results, excessive caution could also hold back performance. History shows that fear-driven decisions often led to missed opportunities (see the bar chart below). Investors who sold during ‘stress events’ often missed out on the speedy recoveries that followed. With that in mind, we believe it is premature to adjust our investment strategy based on potential risks of Trump 2.0. In 2025, we expect good equity returns.
Positive outlook on risky assets
The economic outlook is moderately positive in both the US and Europe. Central banks are likely to continue supporting growth by cutting interest rates in 2025 – and without clear signs of an approaching recession, the outlook for risky assets remains upbeat.
US equities are promising
Therefore, we are entering the new year with a slight overweight in equities. At the regional level, we prefer US equities over European ones. The US economy is cooling slightly, but we believe that growth in the US will – once again – be higher than in the eurozone next year. As a result, US companies can show healthy profit growth. We have a neutral view on emerging markets, partly due to mixed signals from the Chinese economy. Moreover, the effectiveness of the Chinese government’s stimulus measures remains uncertain.
Key sectors to watch
We see significant potential in the information technology (IT) sector. We are therefore slightly overweight IT. Growth prospects for tech companies are favourable, thanks to long-term trends such as digitalisation and the rise of generative AI. If you’re interested in exploring investment opportunities as the next phase of AI approaches, check out our related article Disruptors – AI.
We also see opportunities in the financial sector. Although the Federal Reserve (Fed) raised interest rates sharply in 2022 and 2023, the US economy remains relatively strong and consumer spending is holding steady. These are positive factors for financials in the US. Furthermore, US financials may benefit from planned deregulation under the Trump administration. Equity valuations in the financial sector are also relatively low, making this sector an appealing area from a risk/return perspective.
High-quality bonds for stable portfolio growth
Falling interest rates make bonds an attractive asset class, with European bonds being our preference. Both the US Fed and the European Central Bank (ECB) began lowering interest rates in 2024. We expect the ECB to cut its policy rates more aggressively than investors currently anticipate, which is favourable for European bonds.
More specifically, we see opportunities in high-quality European bonds, including government bonds and investment-grade corporate bonds. These bonds can offer solid returns and are more resilient to potential economic setbacks. We are less enthusiastic about risky bonds, such as high yield and emerging market debt. In our view, these bonds are too expensive from a risk perspective.
Mind the risks – but don’t miss opportunities
Periods of change can often tempt investors to retreat from risk, but pulling out too soon could cost returns. While we don’t expect extraordinary returns in 2025, we still see sufficient opportunities for investors. Economic growth continues, especially in the US, and recession risks remain distant. Moreover, we expect interest rates to fall further. Against this background, both equities and bonds remain appealing.
