• With the global rate cutting cycle well underway, the key question for 2025 is how low rates will go.
• Artificial intelligence is poised to revolutionize productivity across the economy, from pharmaceutical development to white-collar labor.
• With political power shifts perpetuating uncertainty, investors should consider how they are diversifying exposures to bolster portfolio resilience.

Investors are being presented an opportunity to build on strength. That is the key takeaway of our Global Investment Strategy team’s Outlook 2025 report (PDF), which explores 25 considerations to help investors prepare for the coming year.  Those ideas align with five overarching themes: Easing global policy, rising capital investment, election impacts, portfolio resilience and exploration of new frontiers.

A foundation of strength was born out of 2024’s strong market returns as economic growth and inflation came into better balance. Dynamics related to central bank rate cuts and big spending on artificial intelligence (AI) adoption, power, infrastructure and security offer opportunities to build on the gains. However, we think it will be key for investors to complement an opportunistic mindset with a focus on bolstering portfolios against key risks. Of note, shifting global political dynamics and a "reset" of regional priorities could introduce market volatility as investors digest what could be multi-year implications.

As central banks pursue lower interest rates, they face a delicate balance of supporting labor markets and demand while avoiding a rekindling of inflationary pressures. Easing monetary policy may not be as stimulating as some might expect, but we could see benefits for areas like dealmaking and commercial real estate.  It also lends to the potential for longer duration fixed-income assets to outperform cash; all the more so in markets like Europe if the region’s growth remains muted and policymakers need to cut rates more quickly.

In the U.S., the Federal Reserve’s policy path could nudge mortgage rates lower, but (unfortunately) 2025 looks unlikely to be the year that housing affordability challenges are cured. That considered, a continuation of housing demand outstripping supply could be supportive for homebuilder stocks.

The rapid evolution of AI will be a critical growth driver in 2025 as new models and applications make their way into mainstream use, reshaping industries and promising efficiency gains. Additionally, the incoming presidential administration seems keen on pursuing a less onerous regulatory environment, offering the possibility of a pickup in mergers and acquisitions, initial public offerings and other capital markets activity that’s been depressed since 2021 – a sector like financials may be a beneficiary.

While investors should embrace potential market tailwinds emanating from the election outcome, staying aware of potential headwinds is just as important. For example, the rise in government debt could be accelerated by an extension of tax cuts, presenting the potential for volatility – especially in bond yields. Fixed-income investors may consider an approach that blends buy-and-hold and actively-managed strategies or introduce allocations to real assets, like gold, in traditional stock-and-bond portfolios for added diversification.

U.S. highlights

• Rate cuts and looser regulation may bring opportunities, even though the main challenge lies in balancing economic growth with inflation risks
• Homebuilders are likely to benefit from strong demand as affordability remains a challenge in the housing market
• AI-driven productivity will make waves in white-collar sectors, potentially “turning labor into software” by automating labor-intensive intellectual tasks
• Health care and pharmaceuticals are set for transformation as AI disrupts patient management and supports drug discovery, including a potential increase in GLP-1 treatments for diabetes and obesity
• Core fixed-income assets and dividend-paying equities will be valuable tools in building income-driven portfolios amid economic shifts

Global highlights

• European fixed-income assets present opportunities if growth remains tepid, especially in an environment of interest rate cuts
• AI and automation are fueling capital investment across multiple sectors, promising productivity boosts globally
• Real assets such as commodities and real estate are attractive options for diversification amid the global political reset
• Infrastructure investment is poised to grow, especially with increased electrification and data center demand worldwide

The bottom line

2025 promises a blend of innovation and volatility, with both challenges and opportunities across global markets. Investors who prioritize portfolio flexibility, income and diversification are more likely to weather the year’s surprises and seize its potential. In this ever-shifting landscape, a well-rounded strategy that balances resilience with exploration of new frontiers will be key to navigating 2025 successfully. Consult a J.P. Morgan advisor for more information on how this could impact your current investment strategy.