The new year brings both opportunities and risks for investors and the economy. Six market experts weigh in on the biggest threats they see for 2025. Marci McGregor, head of portfolio strategy at Merrill and Bank of America Private Bank, warns about the risk of inflation reaccelerating.
She notes that inflationary cycles often have multiple peaks with long lags in between. If inflation picks up again, it could lead to an early end to the Fed’s rate cuts or even rate hikes, spooking investors. Jim Caron, CIO of portfolio solutions at Morgan Stanley Investment Management, agrees that sticky inflation could change the market narrative.
While not their base case, both experts say it is a risk to monitor. Josh Hirt, senior US economist at Vanguard, points to potential supply-side disruptions as a key risk. Much of the recent economic progress has relied on supply strengths like increased productivity and immigration.
Outlook focused on investor threats
Tighter policies or geopolitical events could renew supply shocks. Valuations are another concern heading into 2025.
“Valuations are not as forgiving as they were when we started 2024,” says Seth Meyer, global head of client portfolio management at Janus Henderson Investors. According to Matt Rowe of Nomura Capital Management, the market is “priced for perfection,” which leaves stocks vulnerable to pullbacks. The biggest question mark is the path for policy under the incoming Trump administration.”
How new tariffs, tax cuts, or deregulation are implemented will significantly impact growth expectations and valuations. Most focus on the negatives, but Caron notes there could also be positive surprises that change the narrative for the better. While the experts see plenty of tailwinds, these are key risks they will watch in the new year.
Monitoring these threats will be critical for investors navigating markets in 2025.
