The new year ushers in a new US administration with policy changes on the horizon.

Portfolio Managers, Strategists and Executives from Natixis Investment Managers, AEW Capital Management, Flexstone Partners, Loomis Sayles, Mirova, Vaughan Nelson Investment Management provide 2025 Market Outlooks.

During 2024, the US economic backdrop shifted as inflation eased, the labor market cooled and the Fed began bringing down interest rates. The new year ushers in a new administration with policy changes on the horizon. Despite uncertainty about what those changes ultimately look like and how they may affect the economy, the market’s mood is optimistic based on expectations of continued growth bolstered by resilient consumer consumption.

We asked investment professionals from Natixis Investment Managers and its affiliated investment managers to predict where markets are headed this year and received views from across asset classes including private real estate, undervalued stocks, bonds and options writing strategies – as well as insight into private equity, ETFs, and retirement security trends. Here is what they expect in 2025:

AEW European research forecasts prime offices to offer best returns

Macro-economic and real estate sector fundamentals have improved, with lower inflation and central bank policy rate cuts. As these are priced into swap rates, reduced all-in borrowing costs have made real estate debt accretive to equity investors. Projected future reductions in bond yields are also expected to push down prime property yields and reverse recent capital value declines. The combined impact of rental growth and yield tightening has lifted our projected returns to 9.2% p.a. over the next five years, led by prime offices. These returns reflect our macro base case scenario and are more conservative than the slow and steady recovery seen post-GFC. Recent financial market pricing incorporates increased concerns for higher inflation and slower and fewer policy rate cuts in the short term. Assuming such short-term concerns are realized in the long term, our downside scenario might become more relevant. This downside scenario shows a 8.6% p.a.  total return, a 0.6% p.a. reduction compared to the base case across our near 200 European markets covered.

By Hans Vrensen, Head of Research & Strategy Europe, AEW

Is the future of investing private?

In terms of macro drivers, interest rates have always been the key driver of private equity. Over the last two years, when interest rates increased steeply, we saw a deep downturn in private equity activity. Now we expect interest rates to continue to decrease, but still remain higher than over the past few years.

As a result, we see two implications for private assets and private equity in general: One is a rebound of activity, which we’ve seen over the last quarter or so in terms of deal flow and general M&A activity.

The second one, which is a little bit counterintuitive, is performance. We expect a continued decline in rates, but they will remain higher than those of the previous decade. High rates can be a necessary evil for private equity as they force investors to be more disciplined, and this discipline invariably translates into better performance.

Of course, private equity is not immune to volatility and periods of recession, such as we have experienced over the last two years. But the long-term outlook remains very positive. Indeed, there are some fantastic investment opportunities not least because of the energy transition and more generally technological innovations that will help deal with climate change.

Similarly, individual investors’ interest in private equity is also continuing to grow. The Eltif 2 label is expected to support the democratiSation of private assets in Europe, with the creation of semi-liquid evergreen funds. There are several issues that need to be considered carefully. There’s liquidity for one: despite the emergence of semi-liquid funds, these investment strategies remain fundamentally illiquid and therefore not necessarily advisable to everyone directly – except, through pension schemes.

So, is the future of investing private? I would argue that answer is yes because the world is private. Wherever you look, 80% plus of companies are in private hands and investors need private equity to finance that economy. Looking ahead, evolving regulations, energy transition, and growing interest from individual investors position private equity as the ideal asset class to lead the way forward in 2025 and beyond. In short, private equity has a bright future ahead.

By Eric Deram, Managing Partner, Flexstone Partners

Peering through the noise: Positioning for polatility in 2025

Two words come to mind when thinking about 2025: volatility and transactional.  We see many paradoxes embedded in the Trump’s agenda that are hard to untangle and could lead to bouts of volatility.  Extending tax cuts could stimulate consumption but also worsen the fiscal deficit.  Immigration control could tighten labor markets but also raise wages.  Tariffs could spark a trade war that could simultaneously curb demand and raise prices. We think it will pay to peer through the noise and focus on Trump’s goals and constraints. His actions might have more bark than bite, but we warn against complacency.

China is limping into 2025 nursing weak domestic consumption and a burst property bubble. Protectionism is a key threat. A full-blown trade war could potentially lead China to be a powerful disinflationary force to the rest of the world. The US and China could reach a grand bargain that defuses key fracture points between these rivals. More likely, the two engage in some trade skirmishes that lead to transactions.  We expect more stimulus in 2025, but a bazooka is not likely unless a major trade war erupts.

Our portfolio positioning is guided by our secular and cyclical themes: demographics, security, and the need for massive investments related to electrification and climate. These forces will pressure government budgets, stoke inflation, and keep real rate structurally higher. Cyclically, we think US inflation is bottoming and the economy is down-shifting to a soft landing. We see the policy rate landing around 3.5%-4.0% by the end of 2025. The longer end of the curve should be anchored around its current level given the structural features of this economy.

The credit cycle remains firmly in the expansion/late cycle phase. Credit fundamentals remain buoyant, and we find it hard to foresee a material increase in credit losses. We don’t deny the skinniness of credit risk premiums, but these sort of low spread environments can persist for a long time.  We think credit spreads will be a range trade in 2025 and we still see the BBB and BBB quality segments as offering the best risk/reward.

By Matt Eagan, CFA, EVP, Portfolio Manager and Head of the Full Discretion Team, Loomis, Sayles & Company

A Positive Outlook for Equities Despite Continuing Uncertainty in 2025

2024 was a year of economic and geopolitical uncertainty, and we expect that to continue in 2025. The US election and decisive win of Donald Trump provided more certainty on the outlook for the US economy, and we expect US and Asia to be the drivers of economic growth in 2025. Europe may face headwinds in the context of the Trump agenda and trade policy uncertainty. Germany’s industrial sector continues to struggle, while France grapples with political turmoil.

Geopolitical tensions, particularly in the Middle East and Ukraine, pose additional risks to market stability. The potential resurgence of inflation looms on the horizon, driven by Trump’s inflationary policies specifically around tariffs and immigration. Although the implementation and inflationary effect of these policies may take time to flow through to the real economy, we continue to work under the assumption of higher inflation, and therefore interest rates, for longer. In this context, we may see a strengthening of the U.S. dollar, benefiting European companies with substantial U.S. revenue exposure. In Asia, we see significant growth potential in India in the context of friendshoring and nearshoring. China is expected to stimulate its local economy, which should benefit infrastructure and commodity-related sectors.

We remain positive on the outlook for equities in 2025. In the U.S., equity valuations are reflecting a relatively positive economic scenario already, while in Europe, valuations on average are much lower, reflecting a more negative scenario. The German elections in February could be a trigger for economic reform, boosting valuations in Europe. If we see an end of the Russia-Ukraine conflict, that could also support economic growth in Europe.

Despite market fluctuations and policy changes, we maintain conviction in several long-term growth opportunities that we believe will be well supported in 2025 including:

• Growing demand for generative AI and automation driving increased energy needs, necessitating advancements in renewable energy and storage solutions.
• Health and unmet medical needs, including innovative solutions in diabetes and obesity care, oncology, and immunology.
• Anticipated regulatory focus on PFAS in water supplies will create opportunities for companies specializing in water quality and safety.

by Jens Peers, CIO and Portfolio Manager, Mirova US

US stocks likely up and bonds sideways in 2025

In 2024, we saw several interesting shifts in the economic backdrop including declining inflation, a cooling labor market, and resilient consumer consumption supported by rising real wages. While the Federal Reserve has maintained a relatively restrictive rate regime to manage inflation, we saw lower rates this Fall as the Fed tried to keep pace with normalizing inflation. Investments in AI and productivity gains were also notable, and the labor markets have entered a “don’t leave” phase where if you have a job, it’s relatively secure as layoffs are rare.

Earnings growth and multiple expansion were the biggest drivers of returns for the US equity market during 2024. While some may argue that valuations are at stretched levels, we think these valuations may be warranted reflecting the fact that US corporate margins are at historical highs and investors are willing to pay up for higher quality companies with stronger margins. What’s more, risk appetite does not appear stretched as many investors seem content to sit in money market funds earning 5%, unwilling to jump into equities which would fuel even higher prices.

As we enter the New Year, the labor market appears to be in statis as inflation (ex-shelter) continues to head lower, helping to push real wages higher. This results in more buying power for the US consumer. Because consumer consumption drives most of the growth in the US, it’s a very healthy place to be.

Looking ahead to 2025, our outlook remains positive with expectations of still slowing inflation and an easing labor market. Investment strategies will likely favor US equities with a balanced investment approach with using Treasuries to mitigate risk. We anticipate that further investments in AI will continue to boost productivity and economic growth. The stock market is expected to continue its upward trend, while the bond market is expected to earn its coupon.

by Jack Janasiewicz, Lead Strategist and Portfolio Manager, Natixis Investment Managers Solutions 

Positive backdrop for US Small Cap Security Selection

We expect an acceleration in economic growth in the US in the first half of 2025. At the same time, there will be a modest increase in inflationary conditions. That doesn’t mean inflation accelerating back to mid to high single digits, but just moving away from the Fed’s target.

While the market has become used to narrative investing – such as AI, large caps, and energy – moving forward, it will be more nuanced and become more security specific. Many investors are seeking undervalued laggards, but we don’t think big pockets of undervaluation exist today.

US small caps are relatively less expensive than large caps but fairly valued on an absolute basis. The biggest impact in 2025 will be any material shifts in US Fiscal/Monetary policy and the potential for capital controls to increase outside the United States.

By Chris Wallis, Chief Executive Officer and Chief Investment Officer, Vaughan Nelson Investment Management

The post A cross-asset 2025 outlook appeared first on AdviserVoice.

As the calendar shifts to 2023, many wonder what the new year will bring. A recent easing of inflationary pressures and looking out beyond a potential recessionary environment, some optimism has returned. However, caution remains the watchword for many professional investors. Here are the views of portfolio managers, strategists, and executives from Natixis Investment Managers and its affiliated investment firms about what they expect from the markets in 2023:

Cautious outlook for private equity in 2023

Eric Deram, managing partner, Flexstone Partners

After a year that saw relative buoyancy in the global private equity space, underpinned by the dominance of the ESG agenda, strength in fundraising, increasing prominence of co-investments and secondaries, our industry now faces a rapidly evolving and highly complex outlook. Flexstone Partners’ 2023 outlook is cautious.

We note, however, that Private Equity outperforms by a wider margin during periods of volatility and fund-raising contraction. As a global investor in mid-market private equity funds, co investments and secondaries, we have five key predictions of what’s to coming the year ahead:

1. Amounts raised in private equity will be substantially down in 2023.
2. 2023 will be a buyers’ market for private equity secondaries.
3. As funds take a more center stage in Private Equity, expect increased scrutiny from regulators and LPs.
4. As inflation, global recession and increased interest expenses take their toll, private equity valuations will come down in 2023, just like they did in 2022 for public equities
5. Persistent inflation in 2023 and slowdown in China will further impact CAPEX and export oriented businesses, especially in Europe.

Recovering from the COVID-19 fog

Elaine Stokes, portfolio manager and co-head of the full discretion team, Loomis Sayles

For the last two years, markets have been focused on a global pandemic, war, inflation and the actions governments and their central banks could take to mitigate economic uncertainty and market volatility. Now that we are past peak uncertainty, we as managers can start to focus on the strategies and long-term trends that will shape markets for years to come.

As the fog lifts, I believe the starting place for fixed income investors provides far more income, cushion and opportunity. Portfolio focus needs to move from interest rate bets to credit selection. Carry is likely to become far more important in the next few years as we see volatility come down from the extremes of the COVID era and the likelihood of severe tail risks subside. Investors are once again being paid for some level of volatility and risk. As we work though the slowdown in growth and the ramifications of aggressive central bank policy, it is important to stay nimble, be active and know your credits.

Slower growth and stubborn inflation will be the backdrop for investors. Although growth will take a hit from central bank policy actions, China’s reopening and its potential effect on global demand combined with a resilient, employed consumer will help create a floor. While inflation has likely peaked for this cycle, I believe it will remain stubborn given labor shortages and global reopening demand.

Governments, faced with increasing costs due to the need to secure supply chains and increase spending for cybersecurity, defense, healthcare and climate change, will face deficits. We expect this to pressure rates, which will remain stubborn at near current levels – even after the rate increases stop.

A move toward moderation seems to have started across many political, geopolitical and economic factors. Default risk will now be in focus as we work to extract the central bank safety net and uncover where the excesses reside.

In my view, this bodes well for active managers and their ability to return to analyzing cycles, credits and opportunities with far more conviction than any of us could have had during the events of the last few years.

Three questions for 2023

Jack Janasiewicz, lead portfolio strategist, Natixis Investment Managers

Solutions Three key questions need answers. And these will be critical in how markets evolve over the course of 2023. First, the obvious one: inflation. The worst is certainly behind us, but the more important question is where the structural equilibrium rate settles in the US. Should it prove to be sticky well above the 2% target expect the US Federal Reserve to tighten further than is currently discounted. A more hawkish Fed certainly won’t help restore dampened risk appetite across the globe.

Secondly, where will earnings finally settle? The market seems to be split into two binary outcomes: earnings remaining largely unchanged by year end or down another 10-15%. While consensus views a 2023 recession as inevitable, we find ourselves contemplating the old adage: “Never bet against the US consumer.” We would add another: “Never underestimate the resiliency and flexibility of corporate America.” Corporates are aggressively cutting costs to preserve margins. With cost pressures easing and demand proving resilient might that be the missing piece to the earnings puzzle that leads to a better-than-expected Earnings Per Share outcome? And lastly, after a year of synchronized global tightening, expect 2023 to be a year of policy divergence from global central banks that will certainly influence divergent regional growth outcomes.

The end of the Fed tightening cycle appears within reach while the European Central Bank remains several quarters behind, having just recently adopted the Federal Reserve’s playbook. Heading into 2023, growth momentum appears to be inflecting higher in the US while incremental downside risks appear to be building further in Europe. And in the emerging market (EM) world, many EM central banks were first to tighten. Will they now be the first to ease policy as inflation rolls over and growth moderates? China has fully committed to reopening, and while this process will be non-linear, it does appear irreversible. And in doing so, the People’s Bank of China looks set to continue down a path of completely asynchronous monetary policy relative to the rest of the world – an easing one. Nuance will matter again in 2023 after a year that was one big one-way rates trade.

Uncertainties remain but select sustainable equities look attractive

Mirova Global Sustainable Equity Fund portfolio management team

Looking ahead, we expect continued volatility in equity markets in 2023, driven by many of the same issues markets faced in 2022. We expect a significant slowdown in economic activity in the first half of the year driven by central banks increasing interest rates to fight inflation. We continue to work under the assumption of higher inflation for longer, which is likely to lead to recession in both Europe and in the U.S. The situation in Asia is a bit different and, however fragile, the reopening of China’s economy may help ease global supply chain constraints and support economic growth.

We think many central banks will continue to raise interest rates to fight inflation at least in the beginning of the year, impacting short-term interest rates. The good news is we believe we may have already seen an inflation peak in the U.S. at the end of 2022 and may be nearing the peak in Europe and other regions, meaning the probability of higher long-term interest rates is quite low. That said, as a fallout of the Russia/Ukraine war and the pandemic, we believe that inflation will be higher than it has been historically and for longer, buoyed in part by shifting supply chain practices.

Here are several sustainable investment themes in 2023:

1. Shifting global supply chains should lead to more opportunities related to industrial automation and optimization of industrial processes across industries.
2. Energy and energy security – Short-term solutions such as importing liquid natural gas from other countries will likely be used in response to the Russia/Ukraine conflict and the potential for Russia to leverage its oil and gas supplies to apply political pressure. But, longer term, renewable energy – such as wind, solar, and large-scale solutions such as hydrogen – is the only solution for Europe’s energy security and can make the region truly energy independent, although it will take time.
3. Passage of the Inflation Reduction Act in the U.S. – The path ahead for an environmental transition in the U.S. seems clearer for the time being and should strengthen the growth tailwinds for companies that are well exposed to these themes.
4. Biodiversity and food systems – In December at the COP15 United Nations Biodiversity Conference in Montreal, more than 190 nations adopted a landmark agreement to protect and restore biodiversity, including a pledge to protect 30% of land and oceans by 2030. We expect this to lead to greater awareness of biodiversity-related risks and opportunities across industries, in particular solutions for sustainable land management and food production, ingredients and bioscience, water technology and sustainable packaging.

Multiple challenges face equity markets

Chris Wallis, CEO and CIO, Vaughan Nelson Investment Management

The 2022 equity bear market reflects the impact of higher interest rates increasing the cost of capital and therefore decreasing equity valuations. The next challenge for markets will be digesting the reduced earnings expectations for 2023. The largest reduction in earnings expectations should occur during the first two quarters of 2023.

A second half recovery for 2023 will be contingent on the interplay between the rapid deceleration in inflation and whether higher interest rates lead to excessive economic and market weakness. With the current level of interest rates and expiring monetary and fiscal stimulus, we anticipate that by the third quarter of 2023 the trajectory of inflation will be on pace to meet the Federal Reserve’s inflation target.

However, we do expect that tighter financial conditions and expiring monetary and fiscal stimulus may lead to an earnings recession and likely an economic recession. Should weakening economic and financial conditions force policy makers to re-stimulate the economy, we could see inflationary pressures begin to reaccelerate in 2023.

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All investing involves risk including the risk of loss. This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of January 9, 2023 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.

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