As we enter 2025, with Donald Trump officially sworn in as President of the United States, lingering uncertainty surrounding domestic policy, trade, and fiscal measures remains a concern. Increased market volatility is expected as attention turns to the implementation of his policies during his first 100 days in office.

Nevertheless, we remain optimistic about the global growth cycle and expect developed market equities to outperform their emerging market counterparts in 2025. If President Trump successfully enacts tax cuts and deregulation, it could further boost consumption and investment, strengthening the economy. Overall, U.S. equities remain stable at all-time highs, supported by robust corporate margins and solid revenues from large-cap companies. We anticipate that most sectors will deliver positive earnings growth in 2025.

Easing inflation, a resilient labor market, and strong household balance sheets should bolster consumer spending and support broader economic growth. Additionally, the U.S.’s leadership in artificial intelligence, quantum computing, and semiconductor technology, combined with significant AI-related spending commitments from major tech companies, positions this sector as our top focus. Under the Trump administration, potential bold financial deregulation could benefit financial institutions, with ripple effects extending to areas like cryptocurrencies. President Trump has also signed laws to expedite energy projects, which could help alleviate energy supply constraints. These policy shifts contribute to a favorable backdrop for risk assets.

While U.S. growth appears strong, President Trump’s broad mandate to reverse policies from the Biden administration introduces potential risks. Key concerns include the possibility of universal tariffs on imported goods and increased domestic fiscal support, both of which could reignite inflationary pressures and destabilize global growth. The next four years are likely to be challenging and volatile, but we remain optimistic and vigilant, closely monitoring new policies introduced by President Trump.

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As markets immediately priced in risk-on environment after the Republic victory, how should investors navigate the markets moving into 2025?

First, all eyes will be on how Trump implement protectionist policies such as higher tariffs, putting pressure on US’s trading partners including China and Mexico. Small cap companies will be major beneficiaries as Trump “America First” policies lift domestic businesses.

With deregulation expectations, sectors such as Wall Street banks, asset manager, private equity firms, cryptocurrencies, energy – especially oil and gas exploration are poised to perform in 2025. On the other hand, renewable-energy stocks will be losers as Trump may not favor large-scale tax credit for this sector.

Investors should brace for large tax cut agenda, reducing corporates and individual income tax further will broadly support corporate earnings and stimulate growth. Additionally, more incentive for businesses whose However, this will be a challenge as it will exacerbate budget deficits, increase borrowing costs, put upward pressure on Treasury yields ,driving up the long end of the yield curve. This potentially slow down the pace of Fed easing.

Amid these, we should expect strong USD as the US economy may maintain confidence encourage more capital flows, potentially an inflationary environment where there is continuous pressure to keep interest rates high.

The S&P 500 is up almost 25% YTD.  Let’s be ready for 2025.

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