- 29-11-2024

Investment Outlook 2025: a volatile year

2 min

“2024 has been an exceptional year for the stock market, especially in the United States,” says Philippe Gijsels. “As in 2023, it was the so-called ‘Magnificent Seven’ that led the bull market. This year, however, the rally went beyond this small handful of technology stocks – in practice, it’s a bit more than seven companies – to encompass a broader range of stocks, sectors, themes and groups.”

Magnificent Seven

Despite this broader rally, the stock market in 2024 saw its highest concentration in decades. The Magnificent Seven accounted for a staggering 30% of the total S&P 500. Such a high concentration, driven by a small group of disproportionately rising stocks, encourages passive investing (i.e. buying the index without picking individual stocks).

The US stock market has significantly outperformed others in 2024, a trend that began during the 2008–2009 financial crisis. With Donald Trump as President-elect and his expected policies, it is unlikely that there will be a major rotation into markets such as Europe or China in the short term. However, the significant valuation gap between these regions could eventually drive such a shift. Nevertheless, given the extended period of US exceptionalism, it remains prudent to focus on quality investments, both within and outside the technology sector. Given the geopolitical and economic uncertainty, 2025 could be a very volatile year for financial markets, potentially giving active management the edge over passive strategies once again.

Currencies

Most major currencies, particularly the euro-dollar exchange rate, saw limited movement in 2024. Overall, currency markets were not particularly volatile.

One exception was the relationship between the US dollar and the Japanese yen. In August 2024, the yen strengthened significantly, leading to an unwinding of the so-called carry trade, where funds are borrowed in yen at lower interest rates to invest in higher-yielding currencies. This unwinding has caused significant volatility in other markets.

2025 could be much more volatile for currency markets. With President Trump’s policies, it is likely that the different economic blocs (US, Europe, Japan, China, etc.) will grow at different rates, leading to divergent monetary policies from their respective central banks. If US interest rates rise faster – or fall more slowly – than those in other regions, the interest rate differential will widen, potentially attracting more capital into US bond markets and strengthening the US dollar.

However, Trump’s focus on reducing the US trade deficit may favour a weaker dollar. It is plausible that an agreement could be reached between the economic blocs to weaken the dollar in exchange for more leniency from the US on trade issues, including reduced import tariffs.

Commodities

For commodities, 2024 was a relatively uneventful year overall, partly due to weak growth in China and a strong US dollar.

On the other hand, thanks to central banks’ purchases, gold has reached new heights. Specific commodities, particularly rare earth metals, have also experienced an upward trend. BNP Paribas Fortis believes this is just the beginning of the biggest bull market in history, especially for metals.

Philippe Gijsels: “The supply and demand dynamics for commodities remain highly favourable over the long term, especially as China ramps up economic stimulus to offset a potential slowdown in exports caused by tariff impositions. Gold and silver also remain core portfolio holdings, offering protection against both inflation and ongoing geopolitical uncertainty.”