It’s the most outlook-y time of the year.
The 2025 capital market forecasts are coming at us in bunches, as they do each December. This year’s outlook authors faced a more complex assignment than usual, given the state of asset valuations and geopolitics. Here’s a roundup of key themes from three global asset management firms.
BlackRock: AI transformation
“[W]e are not in a business cycle,” according to the BlackRock Investment Institute’s 2025 Global Outlook. The asset manager believes that “mega forces,” artificial intelligence (AI) most prominently, are transforming the global economy. “It’s no longer about short-term fluctuations in activity leading to expansion or recession.”
BlackRock’s report presented three investing themes: capital markets (including private markets) are funding this transformation; we can’t assume that the traditional rules of investing will continue to apply during this period of dramatic change; and the potential of AI will continue to play an outsized role in equity valuations.
“We are staying pro-risk,” BlackRock wrote. “We see the U.S. still standing out versus other developed markets thanks to stronger growth and its ability to better capitalize on mega forces. … We don’t think pricey U.S. equity valuations alone will trigger a near-term reassessment.”
Give credit to BlackRock for addressing the Republican in the room, with its reference to “policymakers pursuing measures that add to volatility rather than stability,” in the report. “Financial markets may work to rein in any policy extremes, such as with fiscal policy. Yet we think there will be fewer checks when stocks are running up, creating potential for risk appetite to turn frothy.”
Invesco: risk-on
There’s a jumbo jet coming in for a soft landing on the cover of Invesco’s 2025 forecast. We can forgive a bit of overtly literal art direction when the message is that reassuring. (We’ve been known to lean on the occasional visual cliché ourselves.)
The firm predicts a slowdown in economic growth in the short-term, and then a rebound that extends throughout the year. Expect “a favourable environment for risk assets globally.”
Invesco is confident that the U.S. labour market will hold firm, and optimistic about the eurozone and U.K. bouncing back in 2025, thanks to central bank easing and manageable real wage growth.
Japan may be in for a good year, for the same reasons, “though the yen is likely to strengthen and impact Japan’s export-heavy market.” Recent news from China is expected to drive growth there, but Invesco is less sanguine about a local ripple effect. “[W]e think the reflationary impact on the rest of the region could be limited.”
Invesco also sees reason for optimism in emerging markets, prompted by central bank rate cutting in developed markets, a more reasonably priced U.S. dollar and global economic growth. “Specific stories, such as India’s growth boom, suggest areas of outperformance.”
The report highlighted “non-U.S. developed markets, small capitalization stocks and value sectors in the U.S. with European assets likely to outperform the U.S. due to favourable valuations and cyclical sector weightings.”
Vanguard: trade tension
Vanguard’s forecast drilled down on supply-side trends set to affect the U.S. and international markets in 2025.
Rather than pin its optimism for the new year solely on a Fed-engineered soft landing, the firm wrote that “continued U.S. robustness may owe more to fortuitous supply-side factors, including higher productivity growth and a surge in available labor.”
In the event Trump makes good on his promises to apply tariffs and implement more restrictive immigration policies, “U.S. real GDP growth would cool from its present rate of around 3% to closer to 2%,” Vanguard wrote. “These offsetting policy risks may also increase inflationary pressure.”
Core inflation is forecast to stay above 2.5% for the bulk of 2025.
The slowdown in global trade likely to follow Trump tariffs will hurt the eurozone. Vanguard wrote that the European Central Bank’s overnight rate will be down to 1.75% by year-end.
Vanguard is confident that the Chinese government’s plan to apply additional stimulus to the domestic economy will produce results, and believes more will be required as the year progresses. “Growth should pick up in the coming quarters as financing conditions ease and fiscal stimulus measures kick in,” it wrote. “But more decisive and aggressive measures are needed to overcome intensifying external headwinds, structural issues in the property sector and weak confidence in both the household and business sectors. We maintain our weaker-than-consensus secular view on Chinese growth, and thus expect additional monetary and fiscal loosening in 2025.”
Once the current cycle of rate cuts has run its course, Vanguard’s view is that rates will remain above the historical lows of the 2010s, which will support “solid cash and fixed income returns over the next decade.”
“The investment challenge is a growing point of tension in risk assets between momentum and overvaluation,” Vanguard wrote. “Assets with the strongest fundamentals have the most stretched relative valuations, and vice versa. The economic and policy risks for 2025 will help determine whether momentum or valuations dominate investment returns in the coming year.”