Stock-Market Bulls Staring Down Positioning for Rally Clues

As the U.S. presidential election results roll in, markets are rallying, hitting new highs as investor sentiment shifts to risk-on. This approach is likely to last through the end of the year, benefiting a number of key asset classes. However, 2025 brings with it a number of challenging variables that could impact the market's trajectory.



The election result is a major boost to small-business sentiment in the immediate term, as executives anticipate lower taxes, deregulation, and a much friendlier attitude toward dealmaking and M&A. This is likely to sustain the flows into smaller companies, private equity, and other financial sector stocks, health care, energy, and cyclical industrials. Looking ahead to 2025, however, heightened complexity and uncertainty are expected.

Several components of the policy platform Trump ran on this year carry inflationary elements to them. Should inflation stall, or even rise, higher-for-longer rates could create headwinds for equities. After all, the incipient, short-lived broadening of equity market performance that was seen in the third quarter corresponded with expectations for a faster series of rate cuts from the U.S. Federal Reserve.



The Fixed Income team at Neuberger Berman predicts another interest rate cut in December followed by a pause in the new year. They also foresee the potential for greater volatility further along the curve next year, with a fair value on the 10-year Treasury yield centered around 4.25%.

Challenges & Uncertainty on the 2025 Horizon
While there's grounds for a broad market, risk-on rally through the end of this year, 2025 appears markedly less certain. There is little doubt, in our view, that this election result has made an already challenging 2025 still trickier for the Fed. That, together with the complex crosscurrents of the Trump administration's new tax, spending, fiscal, trade, and regulatory platform, is likely to widen dispersion in stock performance. Beta may be the trade for now, but we believe active management will be critical next year.

Neuberger Berman offers a number of actively managed ETFs across a variety of asset classes. Equity investors would do well to consider the Neuberger Berman Core Equity ETF (NBCR) with its largely sector-neutral portfolio of high-quality companies. The firm also offers the Neuberger Berman Small-Mid Cap ETF (NBSM) that invests in small- and midcap companies with elevated, sustainable growth potential.

For income investors, the Neuberger Berman Flexible Credit Income ETF (NBFC) invests across a spectrum of credit securities and quality, domestic and foreign. It generally maintains an average duration between two and eight years, using qualitative and quantitative factors when selecting securities. Meanwhile, the Neuberger Berman Short Duration Income ETF (NBSD) offers investment-grade, short duration bond exposure.

In conclusion, while the current market positioning of investors in sectors like Big Tech and insurance could support a sustained rally, there are risks and uncertainties that could impact the market's trajectory. As we look ahead to 2025, it's crucial to monitor these risks and uncertainties, as well as the potential for greater volatility and dispersion in stock performance. Active management will likely be critical in navigating the complex crosscurrents of the Trump administration's policy platform and the challenges facing the Fed.