What's everyone saying about 2025?

What happened this week?

As the world gears up for 2025, Vanguard’s Chief Global Economist, Joseph Davis, and team have released a bold and nuanced forecast that challenges conventional narratives about economic resilience, inflation, and market dynamics.

The UBS Chief Investment Office report, helmed by Paul Hsiao and Jason Draho, Ph.D., offers a comprehensive macroeconomic and investment outlook for 2025, setting a stage of cautious optimism amidst a changing geopolitical and economic backdrop. Their insights highlight the resilience of the U.S. economy, the challenges of elevated rates, and the nuanced interplay between consumer strength, corporate dynamics, and fiscal policies under the incoming administration.

At this time of the year, predictions about the future performance of the S&P 500 are a dime a dozen. Interestingly, there seem to be only 3 things that are of concern to investors over the coming 12 months. First, will de-globalisation accelerate? It will if Trump throws up trade barriers like tariffs that would severely affect the global supply chain, leaving companies prone to bottlenecks and absorb higher input costs. Second, will the last mile in getting inflation to target prove to be exceptionally hard?

Kelly opens by chronicling the myriad challenges the global economy has weathered over the past few years: pandemic-induced supply chain disruptions, inflation surges, and unprecedented central bank tightening. Despite these headwinds, the U.S. economy displayed remarkable resilience, with 2024 GDP growth estimated at 2.3%, driven largely by consumer spending, which accounted for 80% of growth in the first three quarters.

2025 opens with a sigh of relief: no recession looms, a marked departure from the gloom of recent years. “The financial markets will be entering a new chapter in the ever-evolving policy story,” writes WisdomTree. U.S. economic growth, albeit modest, is expected to hover around 2%, buoyed by a resilient labor market and investments in artificial intelligence. Yet, inflation remains a sticking point, with core CPI anchored stubbornly around 3.3%. Chair Powell’s words—describing the path to the Fed’s 2% inflation target as “bumpy”—resonate as markets brace for prolonged price pressures.

We believe the macroeconomic outlook for the U.S. in 2025 is solid and promising. Analysts project a GDP growth rate of around 2.4%, driven by a combination of strong consumer spending, robust private sector balance sheets, and a historically strong labor market. The Federal Reserve is expected to continue its easing cycle, with interest rate cuts likely to support economic expansion.

As 2024 draws to a close, investors have fully embraced the stock market. The S&P 500 is up more than 25% year to date. The broader Russell 3000 Index is up 24%. The Nasdaq Composite is up over 31%. Even the laggards are up double-digits with 12% and 14% advances for the small cap Russell 2000 and the Dow Jones Industrial Average. Volatility was low, with a maximum peak-to-trough decline for the S&P 500 of 8.5% (the long-term average max drawdown is over 13%). As we turn our attention to 2025, the supports of the past year largely remain in place, but some additional pillars have been added as we discuss below.

Expectations for the US economy coming into a new year have not been this high in quite some time.? After several years of pessimism, nearly universal perspective appears to favor continuation of the strong growth and outsized asset price gains experienced in the last few years. Rhetoric by the new administration to further energize growth seems to be adding further fuel to the view that American exceptionalism could continue as far as the eye can see.

In a rapidly evolving investment landscape, where traditional stock and bond strategies often falter under the weight of volatility and correlation, Picton Mahoney Asset Management’s BARBELL framework provides a pragmatic and innovative roadmap for portfolio construction. Here’s a rundown of their seven actionable strategies, designed to empower advisors and strengthen portfolios against today’s complex financial environment.

As the dust settles on another rollercoaster year in the markets, the time is ripe to reflect. The following compilation isn’t just a stroll down memory lane — it’s an effort to unpack the lessons and trends that defined 2024. Let’s add a layer of skepticism, a touch of dark humor, and a clear-eyed look at what might come next, with insights from Callum Thomas.

All portfolio managers practice a stock-picking discipline in which they make choices. Growth stock investors attempt to predict which companies will grow the most in the future and compare the growth they expect to what they have to pay to participate. Value managers try to buy companies that are available at a discount to the average stock in hopes of getting average to above-average company performance. We know people we admire in both camps and like to think about how an investor might try to draw from both investment styles.

Top Performing

1. uniQure N.V. (QURE): This biotechnology company experienced a significant increase of approximately ▲108% over the week, attributed to positive developments in their gene therapy treatments.
2. Reviva Pharmaceuticals Holdings Inc. (RVPH): Specializing in therapies for central nervous system disorders, Reviva Pharmaceuticals saw its stock rise by about ▲66% this week, likely due to favorable clinical trial results.
3. Procaps Group S.A. (PROC): A pharmaceutical company focusing on advanced drug delivery technologies, Procaps Group's stock increased by approximately ▲61% over the week, possibly due to strong quarterly earnings.
4. Rigetti Computing Inc. (RGTI): A quantum computing firm, Rigetti Computing's stock rose by approximately ▲44% over the week, likely due to advancements in their technology and strategic partnerships.
5. SoundHound AI, Inc. (SOUN): An AI company specializing in voice recognition and natural language processing, SoundHound AI's stock surged by about ▲36% this week, potentially driven by new product launches or partnerships.

Bottom Performing

1. Check-Cap Ltd. (CHEK): This medical diagnostics company experienced a significant decline of approximately ▼48.9% over the week, possibly due to unfavorable clinical trial results or financial challenges.
2. NFT Limited (NFTL): Specializing in non-fungible tokens, NFT Limited's stock fell by about ▼47.9% this week, potentially influenced by market volatility in the digital asset space.
3. Intchains Group Limited (ICG): A technology firm, Intchains Group's stock decreased by approximately ▼46.1% over the week, which may be related to sector-specific downturns or company-specific issues.
4. Global Clean Energy Holdings Inc. (GCEH): This renewable energy company's stock dropped by about ▼40.2% this week, possibly due to project delays or changes in government policies affecting the clean energy sector.
5. The Glimpse Group Inc. (VRAR): Involved in virtual and augmented reality, The Glimpse Group's stock declined by approximately ▼36.6% over the week, potentially due to slower-than-expected adoption of its technologies.

This week in the investment industry, several significant developments have emerged:

Shift Towards Passive Investments

• Active Fund Managers Facing Challenges: Active fund managers are encountering increased pressure as investors gravitate towards more cost-effective passive funds. Notably, Richard Toh, CEO of a Singapore-based hedge fund, acknowledged missing key investment trends, resulting in a 35% loss in his fund's value. Prominent managers like Nick Train have also struggled to outperform the market. In contrast, passive funds, which track indices without active stock selection, charge lower fees and continue to attract substantial capital, with firms like BlackRock and Vanguard leading the industry. The dominance of large tech companies has made it challenging for active managers to provide unique insights, often leading to underperformance. While some active managers have recently shown modest improvements, the trend indicates a continued shift towards passive investments, though active management remains pertinent in specific sectors such as bonds and small-cap stocks.

Departures from Climate Alliances

• Major Banks Exit UN-Backed Climate Alliance: Morgan Stanley has announced its departure from the UN-backed Net-Zero Banking Alliance (NZBA), following similar moves by Goldman Sachs and Citi. This trend occurs amid growing conservative backlash against environmental and diversity initiatives. Although these banks have exited the NZBA, they maintain commitments to achieving net-zero emissions and plan to continue reporting on their progress. Environmental advocacy groups have called for state-level regulation of the financial sector to ensure alignment with climate goals, criticizing the inadequacy of voluntary commitments.

Private Equity Investment Pressure

• Deployment of 'Dry Powder' in 2025: Private-equity firms are under increasing pressure to invest substantial amounts of "dry powder"—capital raised in 2020 and 2021 but not yet deployed. Due to rising U.S. interest rates, deal activity slowed from mid-2022 to mid-2024, hindering capital deployment. As of March 2024, private-equity firms globally had over $500 billion in idle capital, including more than $300 billion in North America-focused funds. Firms typically have investment periods of four to six years; failure to invest within this timeframe necessitates seeking extensions from investors. While extensions are usually granted, they involve careful consideration by fund investors. There is optimism for increased deal activity in 2025, though factors like valuation gaps between sellers and buyers may continue to impact dealmaking.

Superannuation Returns

• AMP Super Reports Strong Returns: AMP's MySuper superannuation customers achieved returns exceeding 15% in 2024, outperforming their peer group. This success is attributed to strategic investments in U.S. and global equities with significant AI adoption. Members born in the 1980s and 1990s saw returns of 15.2% and 15.1% respectively, while those born in the 1960s and 1950s witnessed returns of 11.5% and 9.8%. AMP's chief investment officer, Anna Shelley, highlighted the company's strategic portfolio allocation, focusing on stocks expected to perform well, AI benefits, and investments in private debt and diversified credit. Additionally, cautious investment in bitcoin futures contributed positively to the returns, promoting diversification. The superannuation industry had its best year since 2021, with median balanced options returning 11.5%.

Emerging Investment Services

• New Services for Investors in 2025: Brokerage firms like Robinhood Markets experienced significant growth in 2024, bolstered by new services and SEC-approved exchange-traded funds for bitcoin, enhancing accessibility to virtual currencies for individual investors. Options trading reached record volumes due to advanced tools available to investors. Companies like Carvana Co. and Tesla faced notable stock movements, with Carvana's stock rising 1,256% from its IPO price despite recent critiques, and Tesla experiencing a year-over-year drop in vehicle deliveries. Rivian Automotive outperformed expectations with a 20% increase in deliveries. Nvidia remains a favorite for AI investments, though profitable applications are anticipated. Space companies like Rocket Lab USA and Intuitive Machines had significant stock increases linked to successful projects. The S&P 500 rose 23.3% in 2024, with experts providing insights into high-performing stocks and ETF strategies.

Regulatory Focus on Non-Bank Financial Intermediaries

• Financial Stability Board's Consultation Report: The Financial Stability Board released a consultation report on "Leverage In Non-Financial Intermediation," addressing risks associated with Non-Bank Financial Intermediaries (NBFIs). The report cites incidents like the Archegos crisis and the 2022 nickel market squeeze, suggesting enhanced disclosure between NBFIs and leverage providers to manage risks. This proposal could disrupt the hedge fund industry by requiring large funds to reveal their positions, potentially shifting the market balance towards the sell-side.

AI Integration in Investment Banking

• Reduction of Junior Workload: Investment banks are anticipating significant integration of AI technologies in 2025 to enhance efficiency and reduce the workload of junior bankers. Throughout 2024, banks explored generative AI applications, focusing on eliminating repetitive tasks assigned to junior employees, such as creating pitchbooks and regulatory documents. Notable banks like Goldman Sachs, JPMorgan, and UBS initiated various AI projects, ranging from identifying acquisition targets to automating administrative tasks. Senior executives emphasized that AI aims to improve efficiency without replacing human roles, allowing junior bankers to concentrate on high-value assignments. There is, however, an expectation that this automation could lead to a reduction in junior hires. As AI adoption progresses, banks may shift their recruitment focus, prioritizing graduates skilled in interacting with AI tools over traditional finance or economics backgrounds.

Market Movements

• TSX Futures Edge Higher: As the holiday-shortened week concludes, futures tracking Canada's main stock index rose by 0.27% on Friday morning, aligning with Wall Street trends. Investors are anticipating upcoming economic data releases to assess future interest rate directions. The S&P/TSX Composite Index increased on Thursday and is expected to end the week positively, rebounding from its December decline. Despite a slight dip in oil prices on Friday, they are set for weekly gains, positively impacting Canada's energy stocks.
• Canadian Dollar Weakness: The Canadian dollar weakened against the U.S. dollar on Friday, poised for its sixth consecutive weekly decline. Factors contributing to this trend include a faltering Chinese economy, potential U.S. tariffs on Canadian imports, and political uncertainty following the resignation of Canada's finance minister. The currency was down 0.4% at 1.4455 to the U.S. dollar, nearing a five-year low.

Regulatory and Policy Updates

• Potential U.S. Tariffs on Canadian Imports: Canada's Finance Minister Dominic LeBlanc and Foreign Affairs Minister Mélanie Joly are scheduled to meet with U.S. President-elect Donald Trump's aides in Florida to address potential U.S. tariffs. Trump has threatened a 25% import tariff on Canadian goods, raising concerns about the impact on Canada's economy.

Corporate Developments

• Scotiabank's Acquisition of KeyCorp Stake: Scotiabank has closed a US$2.8 billion acquisition of a 14.9% stake in U.S. bank KeyCorp. The deal is seen as a cost-effective, low-risk way for Scotiabank to invest in the American market.
• CI Financial's U.S. IPO Plans: CI Financial, a Canadian wealth and asset management company, is reconsidering its plans to take its U.S. wealth management business public. After initially pausing its U.S. IPO plans announced in April 2022, CEO Kurt MacAlpine stated that the potential IPO could happen in early to mid-2026, contingent on market conditions. The firm's U.S. wealth management assets have grown significantly, representing nearly half of CI Financial's C$518 billion in total assets.
• Canaccord Genuity's Strategic Review: Canaccord Genuity, a Canadian financial services group, is undergoing a strategic review of its UK wealth management division, which handles C$63 billion in assets. The review could potentially result in the sale of the division or involve bringing in additional investors. Despite this, Canaccord has stated there are no current plans to sell its UK wealth management business and remains committed to its growth.

Industry Trends

• ETF Inflows: The Canadian ETF industry has experienced significant growth, with a record number of new products listed during the first nine months of 2024. Total assets invested in global ETFs reached a record US$14.46 trillion at the end of September 2024.
• Investor Focus on Private Markets: Canadian institutional investors are increasingly focusing on private markets. The 2024 Global Investor Insights Survey revealed that 72% of Canadian respondents expect central bank policy to significantly affect their portfolios, influencing their investment strategies over the next 12 months.

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