BofA Economists and Strategists Forecast the
US Economy to Continue to Outperform and the S&P 500 to Reach
6666 by Year-end
NEW
YORK, Dec. 3, 2024 /CNW/ -- While we await key
details on policy changes in the US, indications thus far suggest
the outlook for 2025 could present big opportunities for investors.
The US economy is on strong footing, with growing signs of a pickup
in productivity growth as we head into the new year. In their newly
released outlook for 2025, BofA Global Research economists and
strategists expect US economic and earnings growth to outpace that
of other developed economies, while US equities should start the
year off strong and end 2025 with the S&P 500 at 6666. Policy
changes, including tariffs, tax policy, and the regulatory
environment, should have almost as much impact on the rest of the
world as they will for the US. As the year progresses,
international opportunities should present themselves: European
stocks are forecasted to slow but rebound to current levels by
year-end 2025, and in China,
domestic stimulus measures should offset any slowdown brought on by
changes to trade policies.
"In 2024, growth surprised to the upside and inflation moved in
the right direction, allowing central banks to start easing, risk
assets to perform well, and global equities to reach new highs,"
said Candace Browning, head of BofA
Global Research. "But as we head into 2025, policy uncertainty has
increased substantially. Many of the expected policy shifts should
be positive for US equities, but a lot depends on their timing and
how the rest of the world responds."
Key macro calls made for the markets and economy in the year
ahead are:
- Further upside for the S&P and it could come
quickly: Head of US Equity Strategy Savita Subramanian expects
more than 10% upward potential for the S&P and earnings growth
to accelerate to 13% in 2025.
- Improved US productivity should help economic growth, but
policy changes should play a critical role for US and rest of
world: Senior US economist Aditya Bhave estimates US GDP growth
to come in at 2.4% year-over-year (yoy) in 2025 and 2.1% yoy in
2026, which is above consensus partly due to improved productivity.
A new mix of fiscal policies may be more supportive of US economic
growth vs the rest of the world.
- Fed expected to cut twice before pausing; US bond yields
should remain in a tight range: In 2025, Bhave and team expect
the Federal Reserve to cut interest rates by 25 basis points at its
March and June meetings and then pause. Mark Cabana, head of US Rates Strategy, expects
a relatively tight trading range for the US 10-year Treasury yield,
around 4-4.5%.
- Key commodity prices, including oil, expected to soften:
Francisco Blanch, head of
Commodities and Derivatives Research, expects commodity demand
growth to weaken, particularly on raw materials. Macro fundamentals
suggest markets in 2025 will be oversupplied for oil and grains but
more finely balanced for metals. After facing headwinds early in
the year, gold should peak at $3,000
per ounce.
- USD strength through 1H25 but then growth concerns lead to
depreciation: Alex Cohen, senior
FX strategist, expects the US Dollar to remain strong into the
first half of 2025, around which time upside drivers should wane
amid a less certain policy and growth outlook.
- Emerging Markets assets face a short-term risk, then likely
improvement: Head of Global Emerging Markets Fixed Income
Strategy David Hauner says that uncertainty about US policy is
likely to send emerging markets lower, but investors may find a
buying opportunity once there is more clarity on trade policy,
especially if the US dollar peaks.
- US Cyclicals should outperform: Subramanian expects
cyclical strength in 2025 for a variety of reasons, including the
Republican sweep, productivity cycle, decades of underspending in
manufacturing and light positioning in cyclicals.
- Demand for credit remains exceptionally strong: Our
Credit Research team expects strong positive total returns for
credit in developed markets next year, the third year in a row of
strong performance.
- Expect Chinese growth to weaken but easing to offset tariff
impact: Helen Qiao, greater
chief China economist and head of
Asia Economics, expects real GDP growth for China to decelerate to 4.5% yoy in 2025 and
domestic demand stimulus to offset any impact from tariffs with a
lag.
- Euro area equity market to see downside through mid-year,
then a recovery. Sebastian
Raedler, head of European Equity Strategy, expects 7%
downside to the Stoxx 600 followed by a recovery close to current
levels.
BofA Global Research
The BofA Global Research franchise covers approximately 3,500
stocks and 1,250 credits globally and ranks in the top tier in many
external surveys. Most recently, the group was named No. 2 Global
Research Firm of 2023 by Institutional Investor magazine; No. 1 in
the 2024 Institutional Investor Developed Europe survey; No. 1 in
the 2024 Emerging Europe, Middle
East & Africa survey;
No. 2 in the 2024 Institutional Investor All-America survey; and
No. 2 in the 2023 Institutional Investor Global Fixed-Income
Research survey. For more information about any awards cited,
visit https://rsch.baml.com/awards.
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Phone: 1.646.532.9241
melissa.anchan@bofa.com
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SOURCE Bank of America Corporation