Q1 2025: Market and Economic Resilience Test – Eastspring Investments
The anticipation of a Trump presidency, supported by a united government, is expected to enhance US economic growth and sustain a period of US economic outperformance. The general consensus is that with the possibility of tax cuts and pro-business policies, corporate earnings are likely to receive a boost in the short term. Consequently, there is a shift towards a more optimistic view on risk assets, particularly global equities, when compared to bonds from a holistic asset perspective.
Given the prevailing policy ambiguity, policy unpredictability has become a defining feature of the global landscape in 2025. The impact of Trump’s policies on the market post-inauguration is being closely monitored. This is evident in key economic indicators such as the J.P. Morgan Global Composite PMI Output Index, which has displayed continuous growth for fourteen consecutive months. The United States has been a frontrunner in driving global growth, showcasing its exceptional status throughout 2024. However, with the US economy operating above its potential, the risks of overheating are on the rise.
Despite positive developments like the US core Consumer Price Index showing progress with minimal shelter inflation, the futurity of inflationary pressures from Trump’s initiatives, notably tariffs, remains uncertain. Consequently, there is a focus on monitoring wage growth trends, labor market conditions, and potential supply-side inflation risks arising from escalating geopolitical tensions, as these could alter the inflation trajectory.
A forward-looking optimism characterizes the asset allocation outlook for 2025. Despite concerns about continued US exceptionalism, diversification remains a crucial strategy. The US economy’s robust performance in 2024, despite the tightening monetary policies of recent years, has renewed confidence in higher yielding credit and global equities. However, caution is advised for US Treasuries due to the resilient economic outlook that may disrupt the Fed’s easing trajectory, with decreasing indications of a looming US recession.
Given the unpredictable global economic climate in 2025, maintaining a disciplined approach to portfolio risk alongside strategic investment planning is paramount. The uncertainty surrounding President Trump’s policy prioritization and implementation order has contributed to economic growth forecasts varying significantly. In response, active risk management and diversification across asset classes are deemed essential strategies for minimizing exposure to potential market volatility and policy shifts that may emerge post-inauguration.
