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BofA Global Research Predicts a Positive 2025 for Equity Markets

In an optimistic outlook for the U.S. economy, BofA Global Research has indicated that 2025 could be a banner year for equity markets, despite the prevailing macroeconomic uncertainties. According to their recent report released on December 3, 2024, the investment landscape is set for significant opportunities, especially for those targeting U.S. equities.

Economists and strategists from BofA project that the S&P 500 will reach a milestone of 6666 by the end of 2025, underscoring their confidence in the performance of U.S. markets over the coming year. Despite uncertainty regarding U.S. policy changes, signs point toward a solid economic foundation and a pick-up in productivity that could facilitate this growth.

Macroeconomic Landscape

As we approach the new year, the U.S. economy is displaying strong signs of resilience. Increased productivity, a key driver for growth, combined with favorable economic indicators, suggests that the U.S. will outpace its developed counterparts in both economic and earnings growth. The BofA team estimates that GDP growth will achieve 2.4% year-over-year in 2025, thanks partly to an expected rebound in fiscal policies supporting domestic growth.

“The growth metrics for 2024 exceeded expectations, and inflation trends have shifted positively, which has prompted central banks to start easing,” noted Candace Browning, head of BofA Global Research. Although policy uncertainties loom large, the anticipated changes, particularly in tariffs and tax policies, are expected to provide significant boosts to U.S. equities.

S&P 500 Outlook

The projections from BofA indicate a robust trajectory for the S&P 500, with expectations of over 10% upside potential in the near future. Savita Subramanian, the head of U.S. Equity Strategy at BofA, anticipates that earnings growth will accelerate to approximately 13% throughout 2025. This bright forecast arises amid the backdrop of cyclical strength driven by various supportive factors, including improved productivity and favorable market conditions.

In addition to domestic growth, international markets are anticipated to respond variably to U.S. policy changes. European markets might initially slow but are expected to recover as the year progresses, while Chinese markets could face a challenging landscape, albeit with domestic stimulus allowing for potential offsets to trade-related impacts.

Interest Rates and Commodity Prices

In terms of monetary policy, BofA expects the Federal Reserve to cut interest rates twice in 2025, specifically in March and June, followed by a pause. This expectation aligns with the belief that U.S. Treasury yields will remain within a close range of 4-4.5%. Meanwhile, commodity prices, particularly oil, are forecasted to soften due to weaker demand growth. According to Francisco Blanch, the head of Commodities Research, the markets may see an oversupply scenario for oil and grains, although balance is anticipated in the metals market.

Emerging Markets and Currency Outlook

Looking at global trends, emerging market assets may encounter short-term risks stemming from U.S. policy uncertainties. However, clearer trade policy directions could present favorable investment opportunities as conditions stabilize. The U.S. dollar is expected to retain its strength through the first half of 2025, with potential depreciation following as macroeconomic uncertainties increase.

Conclusion

BofA Global Research’s analysis provides a cautiously optimistic outlook for 2025, emphasizing opportunities in the U.S. equity markets despite global uncertainties. With anticipated growth metrics and favorable economic conditions, investors might find 2025 a promising year to engage with the markets proactively. The coming year is set to challenge investors to navigate macroeconomic variables while capitalizing on the potential upsides ahead.