Major Fund Manager Reveals Stock Market Forecast for 2025

As we approach the new year, investors are eager to understand the market trends and opportunities that lie ahead. A prominent fund manager has recently shared their insights on the stock market outlook for 2025, highlighting key indicators and sectors to watch. In this article, we will delve into their predictions and explore the factors driving their analysis.



Inflation and Interest Rates: Sticky and Higher for Longer

The fund manager expects inflation to remain sticky, hovering around 2-3% in 2025. They believe that the global economy can live with high interest rates for an extended period without undermining its health. This prediction aligns with the views of several portfolio managers, including Eric Clark of Rational Dynamic Brands Fund and David Miller of Catalyst Funds and Rational Funds. The Federal Reserve's path is likely to remain data-dependent, with policy rates in developed markets staying higher for longer, albeit with continued divergence between U.S. and euro area rates.

Geopolitical Uncertainty and Policy Changes

Geopolitical uncertainty will significantly influence market outcomes in 2025, particularly in the U.S. and elsewhere. Policy changes in trade, immigration, fiscal, and regulatory policies are expected to introduce complexity to the outlook. The incoming Trump administration's proposals, such as lower taxes, less-stringent regulations, higher tariffs, and mass deportations, will likely have crosscurrents and uncertainties that make it difficult for stakeholders to plan for the future.

Equity Market Dispersion

The fund manager anticipates a dispersion across stocks, styles, sectors, countries, and themes in global equity markets. They estimate a price target of 6,500 for the S&P 500, with earnings per share (EPS) of $270. This prediction is in line with J.P. Morgan Research's estimate and Jeremy Siegel's expectations for the stock market in 2025.

Investment Opportunities in 2025

Based on the fund manager's analysis, investors should consider the following sectors and asset classes for potential growth in 2025:

1. Value Stocks and Small-Cap Stocks: The fund manager advocates for investors to overweight value stocks and small-cap stocks in their portfolio. Value stocks trade at an 8% discount to fair value, and small-cap stocks trade at a 14% discount to fair value. Small-cap stocks also remain at a wide discount relative to the broad market.
2. Actively Managed ETFs: While passive ETFs continue to attract the lion's share of net inflows, actively managed ETFs are capturing a growing portion of the total ETF net inflows. Flows to actively managed ETFs accounted for 23% of all ETF net inflows compared to just 9% five years ago.
3. Private Capital: Although private capital performance was mediocre in 2023, the fund manager expects it to perform well in 2025. Private capital experienced deceleration in fundraising, but its AUM remained unchanged.
4. Brands with Strong Balance Sheets and Pricing Power: Eric Clark, Portfolio Manager of the Rational Dynamic Brands Fund, expects brands with great balance sheets, pricing power, high brand loyalty, and that are offering customers reasons to spend and be loyal to perform well in 2025.

In conclusion, the fund manager's stock market forecast for 2025 highlights the importance of monitoring inflation, interest rates, geopolitical uncertainty, and policy changes. By focusing on value stocks, small-cap stocks, actively managed ETFs, private capital, and brands with strong balance sheets, investors can position themselves to capitalize on potential opportunities in the coming year. As always, it is essential to conduct thorough research and consider multiple viewpoints when making investment decisions.