Bank of America
Investors must hedge for unanticipated “tail risks” e.g. end of HK currency peg, “America First” policies inducing euro break-up or EU pivot to East, Trump tariffs causing snap US contraction, secondnd wave of inflation forcing Fed hikes, dollar debasement on new inflationary Fed Chair in 2026, classic Wall St bubble in AI, and so on. We believe an AI/Magnificent 7 “bubble” is the most obvious “tail.” We believe long crypto and China stocks (distressed value/tech-exposure) are best plays in a Magnificent 7 bubble.
Carmignac
Global markets have been quick to price further US exceptionalism following the election, while European and emerging market equities are stuck at the low end of their historical valuation ranges. The return of bond vigilantes, along with the US moving from exceptionalism to disruption, could be the catalysts for a great regional rotation.
Capital Economics
Fiscal vulnerabilities constrain governments over the coming year – indeed, this is a key reason why we do not expect the Trump administration to enact the additional deficit-financed tax cuts that many now anticipate. If governments attempt to delay the fiscal tightening that the markets have already factored in, or push through fiscal expansion that adds to already large deficits, then 2025 could be the year when the “bond vigilantes” make their proper return.
Capital Group
While we have reasons to be optimistic about the outlook we must also be prepared for a downturn. In addition to stocks, bonds will play an important role as the normalization of interest rates returns us to a time when fixed income can provide income, diversification and a cushion against stock market volatility.
Charles Schwab
A trade war could pose the biggest risk to global growth in 2025. President-elect Trump initially threatened 60% tariffs on all Chinese imports and 10-20% tariffs on imports from all other countries. Taken at face value, this would calculate tariffs increasing to the highest level in over 100 years.
Citi
The main downside risk would come from excessive tariffs. If the 10% broad tariffs, the 60% on China and/or the 25% tariffs on Canada and Mexico should materialize, the outcomes for the economy would be much worse.
Deutsche Bank
US tariffs will reinforce Europe’s competitiveness issues and increase the need for the EU to coalesce around its own strategic policy shift. A maximalist Trump trade agenda and a Europe constrained to act because of fragmentation is a huge but realistic risk for the continent.
Deutsche Bank
For all economies and asset classes, a more severe trade war scenario is the most obvious risk, whilst the return of the bond vigilantes in the face of ever-growing fiscal deficits is an alternative risk.
DWS
Even though our core scenario is positive for 2025, this time the range of threats to this scenario is far larger than usual. Much depends on how the current geopolitical flashpoints (Ukraine, Middle East, Taiwan potentially) develop; the patience of the bond markets in the face of the unchecked US debt binge; the extent of further AI investment euphoria and, of course, the decisions that the presumably unconventional next US administration will take.
Evercore ISI
Signs of economic weakness would derail equities’ current trajectory. Tariffs and immigration could each weigh 0.4%pts on real GDP growth in 2025. Yet benign bond market conditions (10 year yield is rangebound between 4% and 4.5%) and credit spreads which remain near their “tights” do not acknowledge the threat to growth or inflation which Trump v2.0 prospectively poses.
Evercore ISI
Higher inflation from tariffs could force the Fed to temper, though not abandon, its easing stance. Sticky inflation coupled with slower growth could rekindle memories of a 2022 style drawdown, when stagflation worries catalyzed stocks sharply lower.
Evercore ISI
Higher bond yields responding to inflation or a worrisome debt trajectory could prove an issue. One of these years, this chart will matter. But for it to matter, we believe it will require bond yields well in excess of 5%.
Franklin Templeton
A combination of stronger US demand, courtesy of surging business investment, tax cuts and fiscal easing, may not be accompanied by an increase in the economy’s supply side, especially if a combination of tariffs and immigration restrictions reduce foreign inputs of goods and labor supply. The support equity markets have garnered from falling inflation and falling interest rates could erode over the next 12–24 months. That is a risk factor we think investors should consider across equities and fixed income portfolio holdings.
Goldman Sachs
The risks of a broader trade war look underpriced. If the market comes to place more weight on that outcome, we think that would reinforce dollar upside, but add to pressures on non-US, and ultimately US, equities. Unusually high US equity valuations may amplify the reaction to any economic weakness and dampen long-term expected returns.
HSBC Asset Management
From an investment standpoint, next year is likely to be marked by heightened volatility and policy uncertainty. In our view, tail risks shouldn’t be ignored. Currently, markets seem to prefer an optimistic outlook, focusing on assumptions around tax cuts, deregulation and their expected impact on future profits. What market valuations may not yet capture is a scenario of higher long-term rates and declining global trade, which could ultimately weigh on company fundamentals.
HSBC Global Private Banking
If there is any risk here, we think it is the potential for stronger-than-expected US data (further boosted by tax cuts and deregulation) to cause markets to flip-flop between the soft-landing and no-landing scenarios: this would lead to volatility in the rate expectations and hence the need for a tactical and active investment approach.
Invesco
Apart from stretched valuations for some assets, there a number of other reasons for the cautious approach: fiscal consolidation is needed in many countries and this could dampen growth; the global economy may be too fragile to shrug off a potential trade war; inflation may pick up earlier than expected as economies accelerate and, finally, a worsening of an already extreme fiscal position in the US could push treasury yields even higher and weaken the dollar (especially if the Fed’s independence is called into question).
JPMorgan Wealth Management
Tariff policy presents perhaps the biggest risk to global growth. While we do not believe blanket duties on all imports are likely, tariffs on specific goods or trading partners are. Retaliation from trading partners would exacerbate the negative shock to global trade.
Lombard Odier
Geopolitics remain a prominent risk across markets, centred around US-China tensions, and conflicts in the Middle East and Ukraine. Other key risks include a resurgence in inflation, or a more pronounced slowdown in global growth.
Macquarie
The risks appear skewed to the downside. While we assume a gradual ramp up in the level of tariffs, it is possible that the first salvo is both bigger and faster than we have assumed. That would see global growth slow materially and US inflation move higher.
Morgan Stanley
Policy uncertainty in the US will remain a factor worldwide, with potential deregulation as a positive, while tariffs and restrictions on immigration might disturb markets later in 2025.
NatWest
Donald Trump’s proposed aggressive tariffs clearly represent a significant threat to the current pattern of global trade, risks further trade wars, and may weigh on economic growth in 2025 and beyond. Estimates suggest that there would be a negligible impact on the UK economy and a limited impact on the EU (with Germany and auto manufacturers the most exposed). However, a sharp drop in Chinese growth would be likely.
Ned Davis Research
Our inflation forecast (2.75%-3.25%), GDP expectations (2.0%-2.5%, with a slower second half), Fed policy uncertainty, EPS projection (8.4%), 10-year yield outlook (4.625% fair value), potential for tariffs and deportations, and the presidential cycle suggest the risks increase in the second half.
Ned Davis Research
Supply-side disruptions, including tariffs and mass deportations, are downside risks to growth and upside risks to inflation.
Ned Davis Research
The global economy has shown notable resilience, with recession chances waning. Risks include monetary and fiscal policy uncertainty, sticky inflation, and easing Chinese growth.
Pimco
The US economy, like others, appears poised to achieve a rare soft landing – moderating growth and inflation without recession. But there are risks, such as tariffs, trade, fiscal policy, inflation, and economic growth.
Principal Asset Management
What are the risks ahead? Policymaker error, either from central banks or the government. The difficulty of accurately estimating the neutral rate, particularly at a time of profound technological change, means that as monetary easing cycles progress, the risks mount. Governments also need to tread cautiously. Bond vigilantes are steadily gathering.
Schroders
We need to recognize that the risks are increasing as positive expectations get baked into market valuations. In particular, around a 4.5% to 5% yield on the US 10-year bond, we would judge that comparisons with bond valuations would pose a speed limit to equity returns.
Schroders
Our bias is still to worry that the US growth environment might be “too hot” rather than “too cold”. Curbs on immigration and policies to boost the corporate sector could increase the risk of domestic inflation, curbing the Federal Reserve’s abilities to deliver rate cuts.
Tallbacken Capital
Given the current over-extension in the markets, we should expect some consolidation, with a high risk of a mid/late winter sell-off. This also means sector and stock picking is especially important, with key sectors outperforming, or underperforming the market.
Truist Wealth
Policy uncertainty remains elevated. The potential for tax cuts, deregulation, and improved business sentiment will counter risks such as tariffs, immigration-related labor constraints, and fiscal imbalances.
UBS
A tariff shock could trigger a stagflationary downside scenario. At the same time, negotiations with trading partners or domestic legal challenges might mitigate their scope and impact, and tax cuts and deregulation could support a more positive market narrative.
Vanguard
The likelihood that we are in the midst of a valuation-supporting productivity boom, akin to the mid-1990s, must be balanced with the possibility that the current environment may be more analogous to 1999. In the latter scenario, a negative economic development could expose the vulnerability of current stock market valuations.
Wells Fargo
Implied terminal rates look too high. We continue to stress that markets are pricing too high a probability of a soft landing in the US, UK and Canada. For instance, we estimate the rates market prices about a 90% chance of a US soft landing. In our base case, low growth in US and euro zone leads to 10-year yields falling to 3.75% in the US and 1.9% in Germany.