2025 Outlook Update: How to Parse Policy Uncertainty
Our 2025 Outlook explored the key dynamics we believed would define the year ahead for investors. There has been no shortage of developments and data points to support or challenge the views we held in December 2024.
In an era marked by policy uncertainty and heightened geopolitical risks – an environment likely to persist – fortifying portfolio resilience is crucial for achieving wealth goals across various economic scenarios.
1. Easing global policy
Our 2025 Outlook highlighted the potential for easing global policy, characterized by lower policy rates in the United States and Europe, alongside continued fiscal support in China, would bolster financial markets.
Despite sticky inflation in the U.S., the global easing cycle appears to remain on course. In Europe, the growth and inflation backdrop has posed no constraint on policy easing.
China continues to deflate its property sector bubble and seeks to limit the economic damage by easing credit conditions for financial institutions. Policymakers’ efforts have been piecemeal so far, but sufficient to stabilize growth.
Overall, the easing bias from the three major economic blocs ought to continue to support economic growth, corporate earnings and bond markets.
2. Accelerating capital investment
In December, we anticipated that corporate investment would accelerate, driven by companies seeking an edge in the artificial intelligence race. So far, the AI thesis is on track, but the AI trade is entering a new phase.
Many AI models now track Ph.D.-level output, while costs have decreased by nearly 100% from two years ago. Historically, cost declines in emerging technologies have driven increased adoption and broad productivity benefits.
3. Understanding election impacts
Initially, markets viewed certain political developments as pro-growth and favorable for capital markets, with investors optimistic about potential tax cuts and deregulation. However, the current market sentiment has shifted, with concerns now centered around the potential for increased tariffs and the risk of trade tensions, which could drive inflation higher and constrain economic growth.
The administration’s focus on raising tax revenues through tariffs and reducing government spending is being closely scrutinized, and market actions suggest that achieving these goals may be challenging.
Conclusion
Even as markets have wobbled on concerns about the potential damage of a trade war, we believe investors can continue to build on the market strength of 2023 and 2024. The economic cycle looks set to continue, supporting corporate profits and equity markets. At the same time, sticky inflation and policy uncertainty underscore the need to build resilient portfolios through diversification.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: “2025 Outlook Update: How to parse policy uncertainty,” by Jake Manoukian, U.S. Head of Investment Strategy, March 17, 2025
