“What's Old Is New Again" – 2025 Market Outlook

Economic Outlook: Solid but Slowing

The economy remains on solid footing heading into 2025, though growth is expected to moderate. Consumer spending continues to be supported by a healthy labor market, even as pandemic-era excess savings have largely normalized. The Fed has begun easing monetary policy but is likely to proceed cautiously, with their base case showing rates approaching 3.625% by year-end 2025.

Market Performance and Valuations

Markets have shown impressive resilience, with the S&P 500 up 70% since October 2022's bottom. While valuations are elevated, particularly among the "Magnificent 7" tech leaders, Bernstein sees potential for continued gains supported by solid corporate earnings growth. Their 2025 base case target for the S&P 500 is 6,400.

Policy Impact: Election Implications

The recent election adds an interesting dynamic to the outlook. President-elect Trump's proposed policies, particularly around taxes and trade, could meaningfully impact both growth and inflation. The potential for broad-based tariffs (10-20% baseline with up to 60% on Chinese imports) represents a key risk to monitor.

Investment Strategy and Opportunities

From an investment perspective, Bernstein emphasizes the importance of diversification given heightened uncertainty. While U.S. equities have dominated returns over the past decade, more attractive valuations in international markets and small/mid-cap stocks may present opportunities. They also highlighted select areas in private markets, where tighter financing conditions are creating interesting entry points.

Long-term Fiscal Challenges

The presentation concluded with a sobering look at America's growing debt burden. While not an immediate crisis, rising interest expenses and limited political appetite for fiscal restraint suggest higher taxes may be needed longer-term, particularly for high-income earners.

In Bernstein's view, navigating 2025 will require carefully balancing risk and opportunity across asset classes as what's old (inflation concerns, fiscal challenges) becomes new again.