Looking ahead to 2025, Wall Street's general outlook for stocks in the coming year is quite clear: they expect strong growth in the US economy to drive stock prices up, while policies from Trump’s new government will lead the US to create another year of 'exceptionalism' among global stock markets.
But of course, this consensus is not without risks.
Inflation remains above the Fed's 2% target, and many believe this could lead the Fed to keep interest rates at a higher level for a longer time. One of the last bears on Wall Street, Barry Bannister of Stifel, explained that a more hawkish Fed could result in economic growth falling short of expectations and put pressure on the stock market, with the S&P 500 index expected to close the year at 'around 5000 points'.
Bannister is not the only one who thinks this situation could undermine the bull market.
At the UBS Asset Management multi-asset strategy roundtable on December 9, 2025, Evan Brown, the head of multi-asset strategy, admitted that he is currently betting on an exceptionalism scenario for the US. However, the prevailing consensus makes him 'extremely uneasy,' as he sees some situations unfolding that 'could mean the US is not as exceptional as everyone thinks.' Many of these are related to the negative impacts of President Trump's policies.
First, Trump's proposal to expel a large number of illegal immigrants will disrupt the stable immigration flow seen in recent years, which many economists believe is one of the key reasons the labor market has not experienced a full downturn in the past few years.
James Egelhof, chief US economist at BNP Paribas, believes in the 2025 outlook that a large number of deportations leading to a decline in labor growth could lead to inflation, citing how much companies paid to compete for talent when the US had a labor shortage in 2022, ultimately leading the Fed to adopt a more hawkish stance.
Another common reason why the US economy continues to outperform globally is that the US has imposed high tariffs on other countries with already weak economic growth, further widening the gap in economic growth between the US and the rest of the world.
While all of Trump's rhetoric, including his famous slogan, revolves around 'America First,' Brown believes Trump also does not want to exacerbate the already tricky inflation situation. This could be a key difference for Trump 2.0. Unlike in 2016 when Americans sought more growth, this time voters do not want inflation to worsen.
'I guess he will be very aware of the inflation effects of tariffs,' Brown said. 'And he would be reluctant to do things that would significantly raise consumer prices.'
This leads Brown to look towards Europe, where if tariffs do not turn out to be as widespread as feared and the Russia-Ukraine conflict de-escalates, there may be investment opportunities. Many of the over-expansion indicators in the US are conversely not the case in Europe, where stocks are considered undervalued.
Peter Tchir, head of macro strategy at Academy Securities, recently expressed a similar viewpoint.
'Now, everyone seems to think the US is the best,' Tchir said. 'So I think there has to be a shift in the global narrative, that it actually looks cheaper in other parts of the world, and that seems to be where the growth story is.'
Tchir stated that the possibility of another market becoming an attractive investment arena is a key risk for US stocks facing in 2025, although he currently believes this will not happen. It should be made clear that Brown is not bearish on the US stock market either.
Nonetheless, it is still worth considering the possibility of Europe or other regions outperforming US stocks next year, especially as strategists warn of high uncertainty regarding Trump and Fed policies.
For many on Wall Street, the focus is not on what to invest in that can succeed, but on what might succeed the most. If things change and the US economy does not exceed consensus expectations for the first time since the COVID-19 pandemic, strategists believe US stocks will still rise, but this may not be the most distinctive trade of 2025, making it hard to outperform others.
Article republished from: JinShi Data
