Notes From the Road: Investor Views at the Start of ‘25

What You Need to Know

We started the year having discussions with a large number of chief investment officers (CIOs) and allocators. In this short note, we reflect on the key common messages that came out of those discussions, points of consensus and important open questions for the outlook. We reflect on how those perspectives overlap with our view that a change in macro regime is the most likely description of the outlook.

There was strong agreement among investors on a positive view for risk assets and an overweight position in the US. The area of most agreement in terms of where to increase allocations was private assets, especially private debt.

We discuss the key issues that investors have raised across equities, fixed income and alternative assets, and also their views on crypto.

Additional Contributors: Robertas Stancikas, Harjaspreet Mand and Maureen Hughes

There was broad agreement among asset owners on a near-term positive view for risk assets such as equities. The view that it was right to overweight the US was also overwhelming, with almost zero interest in other regions (in equities, at least). To be clear, this is a view that we agree with and expressed in our outlook note for 2025. In our recommendation to clients, we are overweight equities and have a positive view on the US within that allocation. However, the near-uniformity of the view does, it has to be said, give us a slight uneasiness. As one client said, “Nobody disagrees with US exceptionalism. Maybe there is even a case for complacency.”

Macro: majority view of higher inflation; policy changes influence market outlook

There was also a strong majority view that the medium- to long-term outlook for inflation is higher. We polled investors on this point, and there was a consensus that inflation will be meaningfully above the 2% target (Display 1). We agree with this, and the macro view that we have outlined is that investors face a new regime. Strategically, the combination of high public debt, deglobalization and demographic change points to higher equilibrium inflation and lower real growth rates.

In addition to those longer-term forces, in the near term the new US administration has made it clear that immigration and tariffs are areas of policy priority; both have a bearing on the market outlook. As our Economics team have pointed out, Immigration’s positive shock to the labor supply in recent years coincided with hourly wage growth moderating, and is likely a part of the reason why the US is enjoying the “soft landing.”

Some form of trade war is also coming, even if some of the severe proposals should be treated as opening bids rather than desired end points. The US has an inherent advantage here. On a comparative basis, it is a relatively closed economy. Total trade is only about 30% of gross domestic product (GDP) compared with 90% in Germany and 74% in Mexico.

This leaves a lot of questions about fiscal policy and how the market views debt sustainability (a problem across the G7 nations, not just for the US). Tariffs will do little to dent a budget deficit that is 6.5% of GDP. Increasing real growth is hard. One would really have to believe that artificial intelligence (AI) can deliver broad-based transformational gains (see below). Thus, in the long run, this likely points to higher inflation, because it offers the only plausible way to rapidly reduce the level of debt to GDP.