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Capital IdeasTM

Investment insights from Capital Group

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Equity
Perspectives on equity markets for Q1 2025 and beyond

As we step into 2025, what are the key themes poised to shape the investment landscape? To help investors explore the investment implications in global equity markets over the near and longer term, we have published the first of our quarterly Equity Perspectives reports.


Overall, our investment professionals expect global growth to remain broadly positive, albeit at a slower pace, with the US projected to account for a significant portion.


There will be close attention on actions from the US Federal Reserve (Fed), which began cutting its policy rate in the second half of 2024. Looking forward, the Fed will likely assess incoming data on inflationary pressures and labour market softness carefully to guide its decisions in 2025.


Around the world, other central banks have also cut rates as inflation moderates. In Europe, the eurozone economy continues to hover on the edge between expansion and contraction, with expected growth of only around 1% for 2024.  With the continued war in Ukraine, high energy prices and ties to China’s sluggish economy weighing on the region, companies could look to global revenues to drive returns.


In response to the prolonged slowdown in China, the government launched a stimulus package to boost economic growth, support the property sector and restore market confidence. However, the package is not as comprehensive as previous stimulus measures and equity markets have already given back some of the initial gains. Nevertheless, investors may well take comfort that risks in China could start to fade as we progress through 2025.


Elsewhere in Asia, markets like India are benefiting from efforts by multinational companies to diversify supply chains. Meanwhile, surging demand for semiconductors and other technologies, driven by the boom in artificial intelligence, is bolstering growth in other Asian economies.


It is the US economy, however, that stands out for both its cyclical improvement and structural resilience. Broadly speaking, the US benefits from strong productivity and consumer spending, and tailwinds from capital expenditure and public investment spending, which are likely to continue into 2025.


And despite sitting in the late stage of the business cycle, Capital Group economist Jared Franz thinks there are reasons to believe the US economy could move back to the mid-cycle stage rather than tip into recession.


If the US does move back to mid-cycle, we could see a broadening in market returns. In a soft-landing scenario, analysis of historical data suggests that US equities could see attractive returns generated from across a much wider range of sectors.


Along with the factors that support companies in the mid-cycle stage, such as a pick-up in credit demand and employment, there is also the potential that the incoming Trump administration could ease regulations for banks, energy and health care companies, and increase defence spending. But Trump’s priorities may include a mix of tailwinds and headwinds. On the plus side are proposals for tax cuts, increased defence spending and deregulation. Other policies present challenges for certain industries: for example, plans for tariffs could trigger protracted trade conflicts with top trade partners — and potentially reignite inflation.


While investors are getting mixed signals on economic growth in different regions, for equity markets, one of the metrics that matters most is corporate earnings. On that front, there is reason for optimism. Earnings forecasts for 2024 and 2025 continued to see upward revisions across most regions, albeit less aggressively than in late 2023.


Exciting advancements in artificial intelligence and biotechnology are expected to create new opportunities for growth and innovation beyond the technology sector, while the ongoing transition to renewable energy sources continues to drive significant capital towards alternative technologies and sustainable practices.


These are just some of the topics covered in our Equity Perspectives Q1 2025 report. To read more, download the full report.



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Past results are not predictive of results in future periods. It is not possible to invest directly in an index, which is unmanaged. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.

Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.