Market Outlook for 2025: Navigating the New Normal

New Year, New Investments?

After weathering a perfect storm of pandemic disruptions, supply chain chaos, and inflation battles, markets are entering a new phase in 2025. The emergency sirens have quieted, but fog lies ahead. Here's your navigation guide for what's coming and where to invest.

The Big Picture: Calmer Seas, New Challenges

The economy is finally finding its rhythm after years of extremes. Inflation is cooling –for now – but signs are it could make a comeback and this will affect central bank policy. Supply chains are humming, and the Fed is looking to take off the brakes. But this "return to normal" brings its own challenges. Growth is downshifting to a more sustainable pace, making the economy more vulnerable to policy shocks – particularly with major changes potentially coming from Washington.

Where to Put Your Money in 2025

U.S. Equities: Beyond the Magnificent Seven

The bull market shows no signs of stopping, but leadership is broadening beyond the usual suspects. While tech giants continue their growth story, albeit at a more measured pace, new opportunities are emerging across the market.

Healthcare and consumer discretionary sectors are seeing improving margins, while industrials, energy, and materials stand to benefit from lower rates. The financial sector looks particularly promising, buoyed by better yield curves and potential deregulation. Don't overlook mid and small-cap stocks, which offer attractive valuations and strong earnings recovery potential.

International Markets: Selective Opportunities

Japan stands out as a compelling opportunity, driven by corporate governance reforms and economic reflation. India continues to impress with strong earnings momentum and its position as a prime beneficiary of global "friendshoring" initiatives. Taiwan's technology sector is riding high on the AI infrastructure boom. However, approach China with caution – policy support may disappoint investors expecting aggressive stimulus.

Fixed Income: Back in Fashion

Bonds have regained their appeal, offering more attractive yields than we've seen in decades. Intermediate bonds look particularly appealing, though credit quality deserves extra attention in this environment. Your duration strategy should align with your economic outlook – extend duration if you're worried about recession, keep it shorter if you're focused on income.

Alternative Investments: The New Diversifier

The traditional 60/40 portfolio is evolving into a "50/30/20" model, with 50% in stocks, 30% in bonds, and 20% in alternatives. This shift reflects the growing importance of real estate, private equity, and commodities in building resilient portfolios.

Key Investment Themes for 2025

AI Infrastructure Boom

The artificial intelligence revolution continues to reshape the investment landscape. Look for opportunities in data centre real estate, engineering and construction firms, nuclear and renewable power providers, cooling technology innovators, and companies supplying critical electrical components.

Reshoring and Friendshoring

Global supply chains are being rewired, creating opportunities in Mexican manufacturing, Indian technology services, and Southeast Asian supply chains. Companies facilitating this transition should see sustained growth.

Real Estate Evolution

The property sector is undergoing a fundamental transformation. Data centres and logistics properties stand out as particularly attractive, while select regional multifamily developments offer promising opportunities in a normalized rate environment.

The Bottom Line

Success in 2025 will depend on maintaining balance in your portfolio. While the extreme winners of recent years – U.S. mega-cap tech and growth stocks – deserve a place in your investments, it's time to rebalance toward previously unloved areas. Think of it as spreading your bets as the market normalizes.

Remember: The biggest risk isn't being wrong about where to invest – it's being too concentrated in any one area as we navigate this transition year. Diversification isn't just about protecting against downside; it's about capturing opportunities across an evolving investment landscape.

If you’d like to speak with us about your investment options for 2025 then please contact us.