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Market Outlook for 2025: Gauging the Global Effects of New US Policies

03 January 2025

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Market Outlook for 2025—Gauging the Global Effects of New US Policies (Subtitles)

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Chris Hogbin| Global Head—Investments

Scott DiMaggio, CFA| Head—Fixed Income

Nelson Yu| Head—Equities

For a deeper dive into these topics, read Fixed-Income Outlook 2025: Fertile Ground, and Equity Outlook: Preparing for Profound Policy-Driven Change.

Transcript

Chris Hogbin: So, it feels as if we’re at a period of pretty acute geopolitical tensions. In 2024, we had 72 elections around the world, including the US election with an incoming Trump administration. So, Scott, what’s your outlook for the macroeconomy?

Scott DiMaggio: We think this is an environment of slower growth, and it will be an environment where central banks will be able to cut interest rates.

I would also say one thing we should have some confidence in is this notion of US exceptionalism. Many of the proposed policies would suck growth back into the US and that will be very harmful for developed-market economies, probably enabling developed-market central banks outside the US to be more aggressive on monetary policy than the market is expecting.

CH: And Nelson, on the equity side, it seems as if the initial reaction of the market to Trump’s reelection was really quite positive.

Nelson Yu: Markets moved so much at the end of 2024, off the back of suspicions of what might happen. If you just think about two of the most common policies: one around taxes and one around tariffs.

For tax cuts, the companies that can really benefit along a long-term basis are the ones that can reinvest that windfall in a very disciplined manner. If you think about tariffs, there are US companies that actually have a long supply chain outside of the US. They actually might get hurt. There’s companies outside of the US who have invested in manufacturing plants within the US, and that could be a competitive advantage.

So, I think you really have to dig down, do the active research and think company by company through this.

SD: If we get a lot of tariffs, right, which is a big if, that should lead to lower US imports, it should lead to a stronger dollar and potentially a higher tax on consumers. So tariffs could be inflationary, at least in the short term. Countries that are running big trade surpluses with the US—places like Mexico, right—they may be more impacted than places like Indonesia that have a lower exposure to what could happen in the US.

So, security selection, country selection, continues to be critically important. If the deficit, which is running 6.5% of GDP today, goes up in a more meaningful way, right, that could be bad for bond yields. So, I think we do want to pay attention to, as Nelson said, what are the policies, when they get enacted and, especially, what are the costs?

CH: So, Nelson, as you think about the setup for equities in 2025, they enjoyed a very strong 2024—valuations are pretty elevated, particularly in the US.

NY: That top 10 set of companies is so narrow, and narrowly focused into just technology. If you look outside of those companies, we’ve got lots of opportunities across US industrials, US materials, financials. Those all trade at relatively lower levels of valuation. Outside of the US—Europe, Asia, those valuations actually are at historically normal levels and even below normal levels.

So, I think there’s a lot of opportunities of what we can find. And then also, into small-caps. We can see that while small-caps are trading at the lowest valuations in nearly a decade, there’s a lot of good growth opportunities in those companies.

CH: And Scott, as a complement, where do you see the greatest opportunities in 2025 for fixed-income investors?

SD: So, central banks will continue to cut rates, we know there’s roughly $7 trillion in cash sitting on the sidelines in the US. And I think any backup in yields, any backup in spreads is going to present a buying opportunity. So, for us, credit remains attractive. For us, we think clients want to maintain duration in their portfolios. We have certainty there’ll be many hiccups in 2025 and we think that duration protection will be something that will benefit asset allocators.

CH: Clearly a lot of risk out there, but also a lot of opportunity within equities, within fixed income. But a clear need to remain active here to navigate the uncertainties as we progress through 2025.

The views expressed herein do not constitute research, investment advice or trade recommendations, and do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.

About the Authors

Chris Hogbin

Chris Hogbin is the Global Head of Investments for AB. In this broad leadership role, he oversees all the firm’s investment activities. Hogbin is responsible for driving investment success across asset classes, fostering collaboration and sharing best practices across investment teams, as well as leveraging a common infrastructure and evaluating opportunities to invest in capabilities that deliver better outcomes for clients. He is also a member of the firm’s Leadership team and Operating Committee. Hogbin joined AB’s institutional research business in 2005 as a senior analyst covering the European food retail sector. In 2010, he was named to Institutional Investor’s All-Europe Research Team and was ranked as the #1 analyst in his sector in both 2011 and 2012. Hogbin became European director of research for the Sell Side in 2012 and was given additional responsibility for Asian research in 2016. In 2018, he was appointed COO of Equities for AB. In 2019 Hogbin was promoted to co-head of Equities, becoming head of Equities in 2020. Prior to joining the firm, he worked as a strategy consultant for the Boston Consulting Group in London, San Francisco and Shanghai, where he was responsible for the execution of critical business-improvement initiatives for clients in the financial-services and consumer sectors. He holds an MA in economics from the University of Cambridge and an MBA with distinction from Harvard Business School. He is a trustee of the Public Theater in New York.

Scott DiMaggio, CFA

Scott DiMaggio is a Senior Vice President, Head of Fixed Income and a member of the Operating Committee. As Head of Fixed Income, he is responsible for the management and strategic growth of AB’s fixed-income business and investment decisions across the department. DiMaggio has previously served as director of Global Fixed Income and continues to be a portfolio manager across numerous multi-sector and multi-currency strategies. Prior to joining AB’s Fixed Income portfolio-management team, he performed quantitative investment analysis, including asset-liability, asset-allocation, return attribution and risk analysis for the firm. Before joining the firm in 1999, DiMaggio was a risk management market analyst at Santander Investment Securities. He also held positions as a senior consultant at Ernst & Young and Andersen Consulting. DiMaggio holds a BS in business administration from the State University of New York, Albany, and an MS in finance from Baruch College. He is a member of the Global Association of Risk Professionals and a CFA charterholder. Location: New York

Nelson Yu

Nelson Yu is a Senior Vice President, Head of Equities and a member of the firm’s Operating Committee. As Head of Equities, he is responsible for the management and strategic growth of AB’s equities business and investment decisions across the department. Since 1993, Yu has experience generating investment success in global equity markets by joining fundamental research with rigorous quantitative methods. He joined AB in 1997 as a programmer and analyst, and served as head of Quantitative Equity Research from 2014–2021. Since 2017, Yu also served as head of Multi-Style Core Equity strategies, with over $10 billion in assets. Most recently, he was CIO of Equities Investment Sciences and Insights, which brings together resources across Data Science, Quantitative Research, Advisory Services, Risk and Global Execution to deliver differentiated capabilities and insights to AB’s equities investment platform. Prior to joining AB, Yu was a supervising consultant at Grant Thornton. He holds a BSE in systems engineering from the University of Pennsylvania and a BS in Economics from the Wharton School at the University of Pennsylvania. Yu is a CFA charterholder. Location: New York

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Market Outlook for 2025: Gauging the Global Effects of New US Policies

Transcript

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