Outlook 2025 – Keep On Truckin'

The two key themes that have underpinned our investment recommendations since the trough of the global financial crisis (GFC)—US Preeminence and Stay Invested—remain intact. In fact, in 2024, the gap between the US and the rest of the world across key economic and financial market metrics widened further, with US equities outperforming again and US economic growth outpacing that in other developed markets.

Inevitably, after such a long run of US equity outperformance, our clients are asking a number of questions about our strategic and tactical asset allocation views. US clients are asking whether they should allocate all their public equities exclusively to the US, while many of our European clients are asking whether they should underweight US assets in favor of European equities, given the relative cheapness of European stocks. Some clients are asking whether they should tactically underweight US equities with an opportunistic allocation to cash or bonds, while others are asking whether they should allocate a portion of their portfolios to gold, bitcoin or both.

In Section I of this report, we explain why our answer to all these questions is a resounding “no.”

First, we are modestly decreasing our allocation to non-US equities to fund an increase in our allocation to private assets.   Yet, we do not recommend a zero allocation to non-US equities. We do not expect US equities to outperform by the same magnitude we have seen over the last 15 years, and many world-class companies are located outside the US and are attractively valued.

Second, while we acknowledge that US equities are expensive, we also show that high valuations alone are not an effective market-timing signal, and that the record cheapness of most non-US equity markets is warranted by the structural weaknesses of the economies of the Eurozone and most emerging market countries.

Third, we expect US equities to outperform both intermediate-duration US bonds and cash in 2025 based on our economic growth forecast of 2.3%. US equities would be most likely to underperform in the case of a recession, but we assign just a 20% probability to a recession this year.

Finally, we explain why we do not believe that gold, bitcoin or cryptocurrencies broadly have a strategic role in clients’ portfolios. We also do not have conviction that gold currently presents an attractive risk/return opportunity, while we view bitcoin, as we have discussed before, as a speculative digital asset more suited to gambling.

We then put forth our one- and five-year expected returns and review our opportunistic tactical tilts going into 2025. We conclude Section I with key risks to our outlook. We first address the issue of the US debt trajectory and show why it is not a risk to our outlook for at least the next decade. From our perspective, the greater risks emanate from heightened geopolitical tensions and emboldened risk-taking by Russia, North Korea and, most notably, China.

In Section II, we review our economic outlook for key developed and emerging market countries, while Section III details our financial market outlook for these countries as well as our outlook on the US dollar.

We invite you to read our views and investment recommendations in our 2025 Outlook report, Keep On Truckin’.