Allianz Global Investors House View Q1 2025: Fresh thinking

Our view of global markets

The “Trump effect”
Donald Trump’s return to the White House is set to be a game-changer for the US economy and markets. We think the likelihood of more fiscal stimulus and deregulation may drive growth and provide a tail wind for risk assets, at least in the short term.
We still consider a “soft landing” as the most likely outcome for the US economy, where inflation slows and recession is avoided. But we see an increasing risk of a “no landing” where growth reaccelerates and inflation takes off again. This would likely have implications for US monetary policy.
Globally, the second Trump term comes as economies diverge in growth, inflation and interest rates. We see this divergence widening in 2025.
Fresh thinking and broader diversification are advisable. Diversification might include private market assets, particularly if rising inflation reverses the recent decorrelation between stocks and bonds.
Given the Trump effect, we are positive on US equities but are conscious of high valuations. In fixed income, we like Europe over the US, as anticipated European rate cuts are more likely to remain intact. The sequencing of the policies of the incoming US administration will be key in determining the trajectory of financial markets in 2025.
From tariffs to political paralysis in the euro zone, geopolitical risk will loom large but unevenly across markets, requiring a deft approach to managing a portfolio.