House View Q1 2025: Fresh thinking

09/01/2025

Our view of global markets

The “Trump effect”

Donald Trump’s return to the White House is set to be a game-changer for the US economy and markets. We think the likelihood of more fiscal stimulus and deregulation may drive growth and provide a tail wind for risk assets, at least in the short term.
We still consider a “soft landing” as the most likely outcome for the US economy, where inflation slows and recession is avoided. But we see an increasing risk of a “no landing” where growth reaccelerates and inflation takes off again. This would likely have implications for US monetary policy.
Globally, the second Trump term comes as economies diverge in growth, inflation and interest rates. We see this divergence widening in 2025.
Fresh thinking and broader diversification are advisable. Diversification might include private market assets, particularly if rising inflation reverses the recent decorrelation between stocks and bonds.
Given the Trump effect, we are positive on US equities but are conscious of high valuations. In fixed income, we like Europe over the US, as anticipated European rate cuts are more likely to remain intact. The sequencing of the policies of the incoming US administration will be key in determining the trajectory of financial markets in 2025.
From tariffs to political paralysis in the euro zone, geopolitical risk will loom large but unevenly across markets, requiring a deft approach to managing a portfolio.

Chart of the quarter

Trade wars ahead?
Higher tariffs proposed by Donald Trump against China, Mexico and Canada and other major trading partners would shake up trade and risk a more protectionist global landscape. If fully implemented, they could prompt retaliation, threatening the flow of everything from batteries to electric vehicles and raising prices for consumers and businesses, potentially undermining growth.

Source: Allianz Global Investors Global Economics & Strategy, Bloomberg, United States International Trade Commission (data as at 27 November 2024). Note: chart assumes tariff rates will rise from current levels to those indicated by Mr Trump.

Short on time? Download the summary of our House View Q1.

Asset class convictions

Overall, we remain constructive but expect a pick-up in volatility as more detail emerges of how new US policy – particularly on immigration and tariffs – might impact inflation and global supply chains. So, we continue to favour volatility-absorbing strategies in the multi-factor space to anchor portfolios.
We still like the US and remain keen on technology stocks at the right valuation given their innovation and earnings profile. A broadening in technology sector performance is likely in 2025.
European valuations are favourable, and interest rate cuts could be more pronounced than in the US, supporting selective exposure to companies with global earnings resilience.
India’s young population is fuelling an “aspiration economy” and its relatively neutral position versus both the US and China may give its exporters an edge in a more protectionist world.
Despite negative market sentiment, we continue to favour some China exposure in global portfolios. Support for its domestic economy – and recent reform of its private pension programme – could boost the market beyond current expectations.

We favour European bond markets relative to the US. While weaker growth in Europe will likely keep rate cuts intact, the Fed could scale back rate cuts in the US in H1 as the Trump agenda drives domestic growth. We maintain a curve steepening bias in both markets but have tactically taken some profits (or reduced our exposure).
Think about active portfolio construction in fixed income. Outright duration calls should be balanced with relative value trades across regions, currencies and curve positioning – amid greater divergence across economies.
We think UK gilts are a good place to be as the market is underpricing the scope for rate cuts.
In corporate credit, we think valuations of investment grade bonds are more attractive in Europe than in the US (and prefer IG over high yield). But in an unpredictable environment, this asset class calls for active management and diversification.
With uncertainty and potential currency volatility ahead, we think investors should position themselves in the middle to lower end of risk budgets, so they have room to react.

While the S&P 500 remains our favoured equity market, we have softened our stance amid question marks over the longer-term outlook – we want to be prepared for setbacks. US small caps should thrive in a Trump economy.
Japan is a favoured equity market outside the US as it could be less vulnerable to tariff attacks than many other Asian countries, while also benefiting from falling energy prices and solid earnings revisions.
We await any impact that new US policy has on the dollar. While we remain constructive on the greenback for the moment, any dollar weakening might be a chance to reallocate funds to asset classes that came under pressure around the time of the US election such as EM debt. We are increasingly positive on the yen.
Gold is back as a useful diversifier in multi-asset portfolios. Since the US elections, the downward pressure on the gold price exerted by a strong US dollar and high real interest rates has been counterbalanced by demand from central banks and from retail investors in China and India.
We think now is a good time for assets uncorrelated with the rest of the market – such as carbon credits or volatility as an asset class in its own right – that can generate value while actively managing risk in portfolios.

Dive deeper into our House View analysis

Our latest thinking on macroeconomics and markets, plus high-conviction ideas from our asset class CIOs.

Download our House View Q1 2025 (full version)

Our full House View includes comprehensive analysis and proprietary data on investment markets.

Download our Snapshot Q1 2025

This is a summary of our House View Q1 2025

Disclaimer

Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.

The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. We assume no obligation to update any forward-looking statement.

The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.
This material has not been reviewed by any regulatory authorities. In mainland China, it is for Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations and is for information purpose only. This document does not constitute a public offer by virtue of Act Number 26.831 of the Argentine Republic and General Resolution No. 622/2013 of the NSC. This communication's sole purpose is to inform and does not under any circumstance constitute promotion or publicity of Allianz Global Investors products and/or services in Colombia or to Colombian residents pursuant to part 4 of Decree 2555 of 2010. This communication does not in any way aim to directly or indirectly initiate the purchase of a product or the provision of a service offered by Allianz Global Investors. Via reception of this document, each resident in Colombia acknowledges and accepts to have contacted Allianz Global Investors via their own initiative and that the communication under no circumstances does not arise from any promotional or marketing activities carried out by Allianz Global Investors. Colombian residents accept that accessing any type of social network page of Allianz Global Investors is done under their own responsibility and initiative and are aware that they may access specific information on the products and services of Allianz Global Investors. This communication is strictly private and confidential and may not be reproduced, except for the case of explicit permission by Allianz Global Investors. This communication does not constitute a public offer of securities in Colombia pursuant to the public offer regulation set forth in Decree 2555 of 2010. This communication and the information provided herein should not be considered a solicitation or an offer by Allianz Global Investors or its affiliates to provide any financial products in Brazil, Panama, Peru, and Uruguay. In Australia, this material is presented by Allianz Global Investors Asia Pacific Limited (“AllianzGI AP”) and is intended for the use of investment consultants and other institutional /professional investors only, and is not directed to the public or individual retail investors. AllianzGI AP is not licensed to provide financial services to retail clients in Australia. AllianzGI AP is exempt from the requirement to hold an Australian Foreign Financial Service License under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order (CO 03/1103) with respect to the provision of financial services to wholesale clients only. AllianzGI AP is licensed and regulated by Hong Kong Securities and Futures Commission under Hong Kong laws, which differ from Australian laws.

This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG; Allianz Global Investors UK Limited, authorized and regulated by the Financial Conduct Authority; in HK, by Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; in Singapore, by Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; in Japan, by Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424], Member of Japan Investment Advisers Association, the Investment Trust Association, Japan and Type II Financial Instruments Firms Association; in Taiwan, by Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan; and in Indonesia, by PT. Allianz Global Investors Asset Management Indonesia licensed by Indonesia Financial Services Authority (OJK).

4100715

House View archives

House View Q4 2024: Shifting gears

What a watershed moment means for investors.

Discover more

House View Q3 2024: Act on volatility

Even with political risks on the radar, this is not a time to sit on the sidelines.

Discover more

House View Q2 2024: Turning the corner

What next for US interest rates? Our new quarterly House View publication explores the outlook for global markets and how investors might position for opportunities amid potential volatility.

Discover more

Recent insights

House View Q2 2025: Vibe shift

A shift is underway in markets. Global investors are eyeing opportunities in Europe amid improved prospects for the region and growing uncertainty in the US. As the world turns on its head, our latest House View points a way through the complexity.

DISCOVER NOW