Hymans Robertson Investment Services Outlook for 2025

Commenting on the opportunities and threats in America this year, William Marshall, Head of Wealth Investments, Hymans Robertson Investment Services (HRIS), says:

“Until policies are officially announced, uncertainty remains around what the Trump presidency will look like. This means that over the year we could continue to see volatility as the market digests new policy developments. There is a widely made case that there will be a continuation of American exceptionalism, which has seen the US economy and stock market persistently outperform others. However, a lot of performance was already priced-in in the immediate aftermath of the election result. This leaves the US equity market as very expensive compared to history. The market may already be priced for perfection. This, alongside heavy concentration makes the market susceptible to a downturn. The US exceptionalism story will likely be a hot topic for investors everywhere over the coming year.” 

Commenting on the Bank of England’s interest rate cuts this year, William says:

“The Bank of England (BoE) is set to take a more cautious path with slower interest rate cuts, at least in the first half of the year. On the face of it, the Budget has boosted demand, through higher government spending, while constricting the supply of the economy, through higher NI contributions and taxes. Both increase the risks of further inflation. However, if we see clear loosening in the labour market (higher unemployment or lower wage growth), this will likely provide the positive signals that the BoE has been waiting for. This scenario would open the door to the BoE cutting rates faster than markets are expecting later on in the year.” 

Commenting on tariffs that may hurt an already deflating China, William says: 

“The economic fortunes of China will continue to have an impact on certain parts of the market. Their 2018 trade war with the US coincided with market turbulence and proved how important trade relations can be. However, potentially of more importance than any trade war between China and the US, will be any further stimulus measures that China’s government announces, to combat its ongoing domestic economic issues. Toward the end of 2024, the Chinese stock market rose around 20% in a matter of weeks after an initial announcement of stimulus. However, it fell back after investors were left disappointed as few details were announced. It’s expected that there are still some measures left in the tank but, the government is waiting to see the full extent of Trump’s tariffs. Further expansive measures would be seen positively by markets.” 

Commenting on the performance of bonds this year, William further adds: 

“After over two years of sharp increases to bond yields, many expected the central bank interest rate cuts in 2024 to lead to falling bond yields. Fiscal expansion, and slower than expected rate cuts, have meant this hasn’t been the case. UK yields ended 2024 around 0.7% higher than at the end of 2023. Although the performance tailwind from falling bond yields hasn’t arrived in 2024, this only increases the prospect of a better year for bonds in 2025 (albeit the first few days of 2025 have been challenging for many bonds, in particular Government bonds). 

“In summary, while US equities may benefit from continued momentum, their high valuations and concentration, strengthens our preference to not naively follow the market, but instead access equities in a regional and style diverse manner. Bonds offer attractive yields relative to recent history, most notably government bonds, but high issuance and concerns over inflation volatility support our more diversified approach to access bond markets.”