Year Ahead 2025

Roaring 20s: The next stage

Roaring 20s: The next stage

Mark Haefele portrait

Mark Haefele
Chief Investment Officer
Global Wealth Management

Introduction

Since the start of the 2020s, global equity markets are up by around 50%, US nominal GDP has increased by over 30%, and US corporate profits are up nearly 70%. All that in spite of unprecedented global lockdowns, the outbreak of wars in Eastern Europe and the Middle East, and the largest spike in interest rates and inflation in decades.

The market and economic developments have led some to term the decade so far as the “Roaring 20s,” marked by high economic growth, strong market returns, and improving productivity.

We are now approaching the midpoint of the decade, and the implications of the US election result are a focal point. A key question is whether US political change might extend or end the Roaring 20s.

The upside scenario would see lower taxes, deregulation, and trade deals adding to a positive market narrative built on solid growth and continued investment in artificial intelligence. The risk scenario is that trade tariffs, excessive fiscal deficits, and geopolitical strife will contribute to higher inflation, weaker growth, and market volatility.

As we consider a wider range of market outcomes ahead, the unpredictability of this decade so far should remind us of the importance of humility and market diversification. But it should also remind us of the adaptability of the economy, the power of innovation, and the potential for long-term market growth.

In Year Ahead 2025, we highlight the investment opportunities and strategies to help investors capture opportunities and manage risks as the decade enters its next stage. 

What does this mean for investors?

In our base case, we believe that central banks are poised to cut interest rates further in the year ahead and that returns on cash will fall. As such, we believe investors should position for lower rates by putting cash to work in investment grade bonds, diversified fixed income strategies, and equity income strategies to sustain portfolio income.

We continue to believe that artificial intelligence is positioned to be the investment opportunity of the decade. To capitalize, investors should focus on both listed megacaps and innovative private companies. Rising electricity demand and decarbonization goals should also create a significant long-term opportunity in companies related to power and resources.

We think there is more to go in equities. With markets powered by falling interest rates, solid economic growth, and transformational innovations, we expect the S&P 500 to reach 6,600 by the end of 2025—around a 10% price return from current levels. Tariffs and geopolitical uncertainty are likely to contribute to volatility for European and Chinese markets in the year ahead.

While tariffs are a concern, they should not completely overshadow the opportunities outside the US. We see value in maintaining diversified exposure to Asia ex-Japan. Korea’s and Taiwan’s exports, crucial to global supply chains, are less likely to be affected by tariffs owing to their non-substitutable nature. India offers a compelling domestic growth story, and we remain positive on China’s internet stocks, which could benefit from potential stimulus measures. In Europe, our focus is on small- and mid-cap stocks in the Eurozone, as well as Swiss high-quality dividend payers.

In currencies, tax cuts, immigration controls, and tariffs are likely to provide short-term support for the dollar. While further near-term strength cannot be ruled out, we believe the dollar is currently overvalued and overextended. Investors should consider selling further dollar strength.

In commodities, we expect gold to break new highs and anticipate higher prices for “transition” metals like copper, lithium, and nickel. We also think the outlook for global residential and commercial real estate is bright amid constrained supply and rising demand.

Thinking strategically

Beyond some of the specific ideas we present in this Year Ahead, we also provide a number of strategic focus areas that can help investors plan ahead and build better long-term portfolios.

These include: putting cash to work, strengthening your core, diversifying with alternatives, optimizing leverage, being active with managing your investments, and considering going sustainable.

By thoughtfully embracing near-term opportunities within the framework of a well-crafted strategic plan, we are confident that investors can build resilient and profitable portfolios. As we reach the midpoint of this dynamic and transformative decade, we extend our best wishes for a prosperous and successful year ahead.

Mark Haefele portrait

Solita Marcelli
Chief Investment Officer Americas
Global Wealth Management

2024 in review

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Growth

We anticipated a deceleration in growth for 2024, but expected the economy to avoid a recession. Growth exceeded expectations. Developed economies are on track to grow by 1.7% in 2024 versus our estimate of 1.1%, with US economic outperformance a key driver. Emerging market growth also looks set to modestly exceed our forecasts (4.4% versus 3.9% expected).

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Inflation and rates

Inflation fell more slowly in 2024 than in 2023, but continued to move down toward central bank targets. We anticipated 50 basis points of rate cuts from the Federal Reserve in 2024. The Fed has already cut rates by 75bps, and we think another 25bp rate cut is possible before the end of 2024.

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Bonds

We projected positive returns from quality bonds and forecast that the 10-year US yield would fall to 3.5% by the end of 2024. By September 2024, yields had fallen to 3.6%. But stronger economic growth data and anticipation of higher inflation under a new US administration supported yields later in the year, pushing them up to 4.4% at the time of writing. Investment grade bonds have returned near 3% year-to-date.

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Equities

We expected positive returns for stocks in 2024 and advocated a focus on quality companies, including those in the technology sector. Returns exceeded our expectations, with the MSCI AC World index delivering a 15.9% year-to-date price gain in US dollars. The MSCI AC World Quality and MSCI AC World Technology indices are up by 18% and 27.3%, respectively, this year.

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Currencies

Our message in currencies last year was to “trade the range.” We expected EURUSD to trade between 1.00 and 1.12 and USDCHF to trade between 0.85 and 0.94. Those ranges have held through the year, with EURUSD currently trading near the middle of this range, close to where it was 12 months ago.

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Commodities

We expected gold to break new record highs, forecasting it to rise to USD 2,150/oz (from USD 1,950/oz at the time of writing). It overshot our initial expectations, closing as high as USD 2,790/oz in October. Oil helped hedge geopolitical risks in the first half of the year but ultimately fell short of our expectations of USD 90-100/bbl, with Brent crude trading at USD 71/bbl at the time of writing.

Topics in this report

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Economic outlook

Year Ahead

In our base case, we expect sustained economic growth in the US, supported by healthy consumption, loose fiscal policy, and lower interest rates. Tariff threats are a headwind for Asia and Europe. If imposed, they could be partially offset by reactive stimulus measures in China. We expect growth in Europe to modestly improve as interest rates fall.

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What will President Trump mean for markets?

Year Ahead

A Trump presidency, coupled with Republican control of Congress, has the potential to reshape the global economic and geopolitical landscape. Key policy areas in focus for investors include tariffs, fiscal policy, deregulation, monetary policy, and international relations.

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The 5Ds

Decade Ahead

The 5Ds—debt, deglobalization, demographics, decarbonization, and digitalization—will be significant forces in the decade ahead that present opportunities and risks for investors. In aggregate, we expect them to lead to higher growth and periods of higher inflation over the long term.

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Asset class expectations

Decade Ahead

Since the beginning of the decade, cash returns have struggled to surpass inflation and bonds have faced headwinds from rising interest rates. In contrast, equities have thrived, and private markets and commodities have offered robust returns. Looking ahead, we expect equities and private markets to continue to offer the highest potential returns.

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Position for lower rates

Top investment ideas

We expect central banks to cut interest rates further in the year ahead, reducing cash returns. We believe investment grade bonds offer attractive yields and expect mid-single-digit returns in US dollar terms. Diversified fixed income strategies and equity income strategies can also help investors sustain portfolio income.

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More to go in stocks

Top investment ideas

After strong years for equities in 2023 and 2024, we see further upside in 2025. We expect the S&P 500 to reach 6,600 by the end of 2025, around 10% higher than today’s levels. Tariffs could contribute to volatility in European and Chinese markets. But we see value in maintaining diversified exposure to Asia ex-Japan. In Europe, we like small- and mid-cap stocks and Swiss high-quality dividend payers.

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Transformational innovation opportunities

Top investment ideas

We expect significant and sustained profit growth in the transformational innovation opportunities of (1) Artificial intelligence and (2) Power and resources. By investing in these areas, we believe investors can earn strong long-term returns.

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Sell further dollar strength

Top investment ideas

While the US dollar may stay well bid in the near term, we believe its valuation may now be overstretched. We recommend investors use periods of strength to reduce US dollar exposure through strategies such as hedging dollar assets, switching USD cash and fixed income exposure to other currencies, and through options.

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Go for gold

Top investment ideas

We expect gold to build on its gains in 2025. Lower interest rates, persistent geopolitical risks, and strong dollar-diversification trends likely see investor and central bank buying continue. Outside gold, we also see long-term opportunities in copper and other transition metals, with demand increasing alongside higher investment into power generation, storage, and electric transport.

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Time for real estate

Top investment ideas

We think the outlook for global residential and commercial real estate investments is bright. With declining and constrained supply paired with rising demand, we see opportunities in sectors including logistics, data centers, and multifamily housing. Investors should focus on strategic acquisitions and diversification to capitalize on these favorable market dynamics.

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How to plan ahead

Top investment ideas

Developing a strategic plan that links goals with strategies can improve investors’ chance of success and help them stay focused on the bigger picture amid potential market turbulence.

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Forecasts

Forecasts

We aim to provide the direction of travel for the economy and asset classes against a wide range of market outcomes ahead. The upside scenario would see lower taxes, deregulation, and trade deals adding to a positive market narrative built on solid growth and continued investment in artificial intelligence, while the risk scenario is that trade tariffs, excessive fiscal deficits, and geopolitical strife will contrib­ute to higher inflation, weaker growth, and market volatility.

Mockup of Year Ahead 2025 publication

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In this Year Ahead, we look at key developments that we believe will shape the next stage of these “Roaring 20s,” including US political change, falling interest rates, and transformational innovation in artificial intelligence and in power and resources.

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Disclaimers

Year Ahead 2025 – UBS House View
Chief Investment Office GWM  |  Investment Research

This report has been prepared by UBS AG, UBS AG London Branch, UBS Switzerland AG, UBS Financial Services Inc. (UBS FS), UBS AG Singapore Branch, UBS AG Hong Kong Branch, and UBS SuMi TRUST Wealth Management Co., Ltd.