eToro's 2025 Investment Outlook: Modest Growth, Low Interest Rates, and the Musk Factor
Investing.com -- eToro's market analyst Jean-Paul van Oudheusden shared the annual investment outlook for 2025. He expects the moderate global growth, low inflation, and low interest rate trends observed in 2024 to continue into the new year. Central banks are predicted to maintain the tendency to lower interest rates in response to new macroeconomic data.
Companies are likely to carefully evaluate new investments given the still relatively high interest rates in historical comparison, and to focus on providing returns for shareholders. The S&P 500 Index is expected to show an average strong earnings growth of around 15%, while a growth of 7.5% is forecasted for the European STOXX 600 Index.
Despite an optimistic outlook for stocks and other risky assets, caution is advised due to historically high valuations, particularly for US stocks.
Donald Trump’s potential return to the White House as the 47th President of the United States on January 20, 2025, may have significant economic implications. His advocacy for higher tariffs could potentially slow global growth, reintroduce inflation as a concern, and even lead to supply chain disruptions. However, if Trump behaves in line with his reputation for deal-making, the growth outlook could change positively.
The increase in public debt is another important factor to monitor. Bond investors are expected to demand higher yields if they perceive that balance sheets are not being managed responsibly. Persistently high interest rates in the US could support a strong US dollar for an extended period, which may negatively impact Europe, Japan, India, and many emerging economies.
With a Republican government under Trump's leadership controlling both chambers of Congress, more opportunities for productivity and rapid decision-making are anticipated. Markets expect higher tariffs, lower taxes, and deregulation to be high on the agenda.
A new element to consider in 2025 is the "Musk factor". Elon Musk’s significant investment in Trump’s campaign brings him closer to power than any businessman in history. This is expected to introduce a more libertarian and entrepreneurial spirit into politics, which could enhance productivity but also bring about increased risks.
Overall, the outlook for 2025 is cautiously optimistic, marking the third consecutive positive year for stocks. However, due to high valuations, the returns for US stocks may not be as favorable as in 2023 and 2024. The technology sector is expected to remain a primary focus due to significant investments in chips and artificial intelligence. Trade wars are likely to dominate the headlines, and developments in commodity prices and geopolitical relations will be closely monitored.
As central banks continue to ease monetary policy, cyclical investment themes are expected to persist, but more structural investment themes are anticipated to emerge in the first half of the year. Sectors such as healthcare and renewable energy are predicted to experience a power shift as early as January 20, 2025.