DWS: The likelihood of a strong US stock market rally in 2025 is low, with gold expected to trade in a narrow range.

German asset manager DWS Group released its January 2025 market outlook. DWS global chief investment officer Vincenzo Vedda stated that the S&P 500 index rose 24% in 2024, but the market rally was mainly driven by a handful of tech stocks, with the so-called FANG stocks accounting for two-thirds of the gains. He said the US market was digesting its big gains and the chances of the stock market continuing its rally in 2025 were low. After recording a stunning rise (26% in dollar terms) in 2024, the bank expects gold to trade in a relatively narrow range.

He noted that several market indicators were worth watching: the MSCI World index had risen 60% since October 2022, while the S&P 500 had risen 70%, and share prices were soaring; cash holdings were at a decade low, while US equity holdings were significantly high; geopolitical instability, along with challenges facing US tech stocks, could put the market under pressure.

Despite the many uncertainties, Mr Vedda remained cautiously optimistic about the stock market in 2025, citing a resilient US economy and job market, a continued recovery in corporate earnings, and a largely topped-out rise in long-term US bond yields.

Mr Vedda said the US economy was likely to remain strong, with the new president, Donald Trump, proposing to loosen regulations, adjust trade policies and pursue an expansionary fiscal policy, which could add momentum to US economic growth. Inflation-wise, US inflation was continuing to cool, but a large-scale tariff increase and tighter immigration measures could slow the pace of inflation falling.

Loosening regulations was likely to boost corporate profits in the US. The bank had raised its rating on US equities relative to the MSCI World index to short-term neutral, on the back of the US election. The bank was most bullish on the healthcare sector, which it believed could achieve robust defensive growth at reasonable prices.

India was set to overtake Germany and Japan by 2030 to become a major global economy alongside the US and China. With lower labour costs than other Asian countries, increased infrastructure investment, pro-growth policies and the inclusion of Indian stocks in major stock indices, these factors had created a favourable capital market environment for India.