Will the Christmas rally set the stage for a strong 2025, or should we brace for a year of profit-taking and potential contractions in global stock markets? Here’s what the data suggests.
A complex but potentially favorable scenario is taking shape for 2025, driven by a combination of macroeconomic trends, monetary policy shifts, and geopolitical dynamics.
As we approach this pivotal year, amid what seems to be a Christmas rally, key questions arise: what scenarios are being forecast for the coming year? Can we reasonably expect the current trends of late 2024 and early 2025 to persist?
Many analysts believe that after an extended period of restrictive policies, major central banks have likely peaked interest rates in 2024. With inflation moderating and global growth showing signs of stabilization, 2025 is anticipated to usher in a phase of monetary easing.
This environment could prove supportive for risk assets, including equities, though less optimistic scenarios remain on the table.
United States: Economic Resilience and Above-Average Growth
In the United States, recession signals remain elusive. Productivity growth is bolstered by a resilient workforce and healthy household balance sheets. While manufacturing faces challenges, the strength of the labor market and rising real wages could drive consumption and accelerate economic momentum. This could allow the Federal Reserve to reduce rates to neutral levels, further supporting growth and achieving a “soft landing.”
However, the potential return of "Trump" to the White House introduces uncertainties regarding the sustainability of stock market growth, even amid a robust economy.
With the S&P 500 price-to-earnings (P/E) ratio reaching 28x and expected earnings-per-share (EPS) growth exceeding 9% in 2024, the index could climb above 6,000 points. Despite this, concerns linger about the technical overextension of US stock markets.
The bond market is already signaling caution: even with expected Fed rate cuts, 10-year Treasury yields remain above 4%, suggesting inflation may prove more persistent than anticipated.
Europe: Economic Recovery or New Collapse?
In Europe, growth remains constrained by structural issues and geopolitical tensions. Nevertheless, with the European Central Bank likely to begin a rate-cutting cycle in 2025, a moderate economic recovery is expected.
Countries like Germany and France stand to benefit from improved global conditions and stabilized energy prices. However, the political landscape has shifted following the European elections in June 2024, where right-wing factions gained prominence, marking a significant departure from the past and aligning more closely with US Republican policies.
Asia: Growth in Doubt
Japan appears to have exited its prolonged low-inflation era, with rising wages fueling domestic consumption. The Bank of Japan may maintain a moderately restrictive monetary policy, though a stronger yen could challenge exporters.
In contrast, China faces notable hurdles, including a real estate sector slowdown and subdued consumption growth. However, government stimulus measures may spur a stronger-than-expected recovery in 2025. The Hang Seng Index, entering 2025 at a decade-low P/E of 11x, remains significantly undervalued compared to US indices.
Among emerging markets, India continues to shine, driven by robust investment and consumption growth, alongside controlled inflation. Other regions, such as Latin America and Central Europe, could benefit from global monetary easing and a rebound in commodity prices.
What Could Be a Negative Scenario?
A downside scenario could emerge from a monetary policy misstep or a major geopolitical event, undermining global growth expectations. In such a case, investors might pivot to defensive sectors and safe-haven assets like US government bonds and gold.
Corporate EPS will also be under scrutiny, as 2023 trained investors to expect strong fundamental growth and frequent positive earnings surprises. What if earnings disappoint? In a market as extended as the US, concerns about widespread profit-taking are intensifying.
Finally, the maturity of corporate debt starting in 2025, with 13% of S&P 500 debt maturing, could increase credit risk and weigh on earnings. In essence, if the soft-landing scenario does not materialize, inflation persists, and rates remain "higher for longer," the likelihood of widespread profit-taking would grow significantly.
For 2025, growth is projected near 10%, higher than the 8-9% forecast for 2024. However, this outlook might be overly optimistic given ongoing inflationary pressures and the strengthening dollar.
Original article published on Money.it Italy 2024-12-11 16:20:37. Original title: Azioni, il rally di Natale ci sarà davvero?
