Schroders Lowers 2025 Recession Risk, Bullish on US, Europe Stocks

Schroders Investment Management has revised its economic outlook, indicating that the risk of a recession in 2025 has decreased. This assessment is based on the current trade situation, which, despite ongoing uncertainties surrounding tariffs, aligns with their baseline expectations. The firm anticipates that actual tariff levels will remain around 12%, with 30% tariffs on China and 10% on other regions. While economic uncertainties persist, Schroders notes that some downside risks have been mitigated earlier than expected. Consequently, the firm maintains a positive view on the stock market, with a particular focus on the financial sectors of the United States and Europe.

Schroders holds a neutral stance on government bonds globally. Although bond yields have risen and valuations have improved, concerns linger due to increasing U.S. debt levels and persistent inflation risks. The firm expects the Federal Reserve's monetary policy easing to be less aggressive than currently anticipated by the market. Outside the U.S., inflation pressures are relatively mild, leading Schroders to favor German government bonds over U.S. Treasuries.

The firm continues to view gold as a valuable diversification tool for investment portfolios and maintains a bearish stance on the U.S. dollar. This perspective is driven by a positive outlook on the performance of euro-denominated bonds and local currency bonds in emerging markets. The unpredictable policy direction of the current U.S. administration has led to increased market emphasis on diversified asset allocation. With many investors holding significant U.S. assets, risk awareness is expected to rise, potentially leading to capital outflows from the U.S. market.

Schroders anticipates that the continued increase in global oil supply will create an oversupply situation, putting downward pressure on oil prices in 2025. Therefore, the firm maintains a neutral stance on oil. However, any disruptions to Middle Eastern oil supply due to geopolitical tensions could pose a risk to this outlook. While not the baseline scenario, such potential disruptions warrant close monitoring.

In summary, Schroders believes that the risks associated with a cyclical economic downturn have been largely contained. Over the medium term, the sustainability of debt levels will be a key area of focus. While maintaining a positive outlook on equities and gold, the firm will closely monitor the trajectory of the U.S. dollar.