UK wealth manager Evelyn Partners outlines its investment outlook for 2025, singling out five themes set to impact financial markets next year and beyond.  

There has been a lot to digest for the global economy and financial markets in the first half of the 2020s – a pandemic, geopolitical tensions in Europe and the Middle East, some major political shifts and a global energy crisis leading to a significant bout of inflation, Kate Morrisey, head of asset allocation at Evelyn Partners, said. 

“While 2024 has been a year of stabilization, with inflation and interest rates finally easing and economic growth proving to be more resilient than expected – factors that helped to deliver a stellar return for those investing in US equities – headwinds remain,” Morrisey continued. “Inflation risks are back on the agenda and government debt levels, along with simmering geopolitical tensions, are still a cause for concern.” 

“As we now embark on the second half of the decade, 2025 promises to be another year of change with plenty of twists and turns along the way, not least with the return of Donald Trump as president in January following his resounding win in November’s US election,” she said in a note.   

Morrisey believes that Trump's presidency will mark a shift in US policymaking, with many of his policies diametrically opposed to those of the outgoing Biden administration. These, and other changes, will reverberate across the global economy, with important implications for financial markets.  

Here are Morrisey’s five themes to watch in 2025 and over the next five years.

Global growth
Just two years ago investors were fretting as inflation took hold across the global economy and central banks looked set to hike interest rates. Fast forward to today and the economy appears to have defied economists’ gloomy recession forecasts to remain robust. 

The global economy is not in bad shape; unemployment in developed economies is close to record lows and output growth is still solid. The US Federal Reserve, the European Central Bank and the Bank of England are lowering interest rates in response to decelerating inflation and to safeguard against risks from relatively high real borrowing costs. Whilst market expectations of inflation have been up since the US election, the inflation profile remains closer to target than at any other time in the recent past. 

Meanwhile, the Chinese authorities are trying to reflate the sluggish economy to avoid deflation. China’s recent stimulus measures include an unprecedented scheme which allows the central bank to inject liquidity into the system to support brokers, asset managers and insurers in purchasing stocks. Does this suggest that the Chinese authorities have taken a “whatever it takes” commitment to support its capital markets and economy? With Western and Eastern policymakers easing monetary policy, global growth could accelerate over the next 12 months.  

An exceptional year for US equities 
The US stock market’s performance has been extraordinary over the past decade, consistently outperforming its global peers. The strength and vibrancy of the US economy, along with innovation in the tech sector, has driven company earnings and valuations higher. However, this comes at a cost: investors are starting to consider some of the multiples in the market rather demanding with a high percentage of the overall valuation concentrated in a handful of names.  

Even so, Morrisey believes that US exceptionalism is likely to continue under the incoming Trump administration. It is known that Trump views the US stock market as one of the most important barometers of economic performance and, as such, he will consider implementing supportive policies. This includes maintaining or even reducing an already low level of corporate taxation. He is also expected to slash bureaucratic red tape which could facilitate greater innovation and efficiency with a resulting boost in productivity.  

The main risk to this much advertised stance is that Trump might follow through on some of his more extreme commitments from the election campaign including sizeable tariffs on Chinese imports and the deportation of millions of undocumented migrants. Such steps are likely to have a negative impact on growth and would put upward pressure on prices.  

Magnificent 7  
Global growth is set to accelerate over the next 12 months, and companies have an opportunity to deliver strong earnings. However, it is worth noting that the bar for outperformance has been raised. Consensus expectations are for earnings per share for companies globally in the MSCI benchmark to grow 12 per cent in 2025, 3 percentage points higher than the expectations for 2024. US listed companies are likely to drive this, with US earnings growth expected to top 14 per cent.  

In recent years, strong corporate performance in the US has been led by the so-called Magnificent 7 – Nvidia, Microsoft, Alphabet (the parent owner of Google), Meta, Amazon, Apple, and Tesla – which delivered very strong annual earnings growth during 2023 and 2024 – 30 per cent higher than the rest of the S&P combined.

In 2025, earnings are expected to broaden out; analysts estimate 18 per cent earnings growth for the Magnificent 7, compared with 12 per cent for the remainder of the S&P 500.

While the Magnificent 7 are still expected to outperform on earnings, the gap is far narrower than in recent years. Might the market move to narrow the stock price performance gap too?  

Growing concern about global debt levels 
Over the next five years, Morrisey expects to see more concern amongst investors about government debt levels. Government borrowing spiked during the pandemic as policymakers sought to offset the negative economic impact of rolling lockdowns. In some respects, this was manageable as expenditure could be financed at record low interest rates.  

However, the environment has changed. The cost of servicing this debt pile has increased sharply; while Morrisey expects to see monetary easing in the next 12 months, a return to record low interest rates seems unlikely. Moreover, governments face growing fiscal expenditures associated with several structural megatrends – aging societies with ballooning spending on healthcare and pensions, a changing world order meaning higher defense spending, and an expensive energy transition and infrastructure rebuild.  

Scott Bessant, the incoming US Treasury secretary, has stated that he wants to reduce the US budget deficit to 3 per cent by 2028, the last year of Trump's second term. But given that the deficit is expected to top 6 per cent in 2024 that looks a tall order. With the US debt ceiling requiring an extension in 2025, investors might expect to see more volatility in government bond yields.   

Opportunity for geopolitical respite?  
Geopolitical concerns appear to be growing. In Eastern Europe, tensions have intensified following US president Biden’s green light for Ukraine to use American made long-range missiles to attack Russia. The Israel-Hezbollah ceasefire deal may diminish the risk of further escalation in the Middle East in the short term but peace in the region remains extremely fragile. 

How will the incoming Trump administration play in all of this, given his isolationist approach? Can the new US foreign policy ease things? President-elect Trump has made it clear that he wants to broker a ceasefire between Russia and Ukraine, and he can likely count on the power of US financial and military resources to force through a deal. Like his first term, Trump could well impose or threaten severe sanctions on Iran to weaken its influence in the region. That may appease Israel and reduce the risk of further Israeli military strikes on Iran. Another big unknown in 2025 is China and how far it wants to extend its influence in the Pacific, especially if the US becomes more insular. 

Wrapping up, Morrisey said that the second half of this decade promises to keep investors on their toes. Morrisey expects 2025 to be shaped by relatively strong global growth and a broadening out in market performance, whilst remaining vulnerable to uncertainties on different fronts, Trump’s economic policy agenda and ongoing geopolitical risks in particular. Against this backdrop investors will need to carefully balance investment risk and opportunities.