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Q1 2025

Capital Markets Outlook

February 2025

 

 

 

 

Highlights

Macro
  • The global economy Is likely to slow but with growing divergence; US should slow less than peers.
Rates
  • Global central banks  are moving closer to neutral, but rates are still  “higher for longer” relative to history.
Credit
  • Strong backdrop for Investment-Grade Credit.

  • Technicals and fundamentals remain supportive of High-Yield. 
Emerging-Market Debt (EMD)
  • We see opportunities in EM corporates. 
Equity
  • Global equity market gains were powered by US Large-Caps in 2024. 

  • US stocks: Two reasons to be selective. 
 
  1. Rates
  2. Credit
  3. EMD
  4. Equity

Macro

The Global Economy Is Likely to Slow but with Growing Divergence; US Should Slow Less than Peers

The Coming Trade War Is Likely to Weigh on Non-US Growth in Particular
GDP forecast (percent)

As of December 31, 2024
Source: Bloomberg, IMF and AB

Inflation Should Move Lower; Less So in the US
AB inflation forecasts (percent)

As of December 31, 2024
Source: Bloomberg, IMF and AB

What Are We Watching?
 

Key Upside Risks

  • Renewed business investment after 2024’s elections could boost growth
  • If the trade war proves ephemeral rather than durable it would meaningfully boost sentiment

Key Downside Risks

  • A larger, more persistent trade war could be very disruptive
  • If Middle East conflict spills into energy markets, it could slow disinflation and complicate central bank efforts to support growth

 

Current analysis and forecasts do not guarantee future results.
DM: developed market; EM: emerging market. Growth and inflation forecasts are calendar-year averages, except US GDP, which is forecast as 4Q/4Q.
*International Monetary Fund (IMF) global forecast as of October 22, 2024
As of December 31, 2024
Source: Bloomberg, IMF and AB

Rates

Global Central Banks Are Moving Closer to Neutral, but Rates Are Still “Higher for Longer” Relative to History

Current Official Rates vs. AB Forecasts
Percent

Forecasts as of December 31, 2024
Source: Bloomberg and AB

Current analysis and forecasts do not guarantee future results.

Credit

Strong Backdrop for Investment-Grade Credit 

Net Supply Remains Low, While Demand Is Increasing
USD billions

As of December 31, 2024
Source: Bloomberg, J.P. Morgan and AB

Yields Are Compelling, While Spreads Look Tight
Percent

As of December 31, 2024
Source: Bloomberg, J.P. Morgan and AB

Tight Spreads Partly Explained by a Higher-Quality, Shorter-Duration Market
Years

As of December 31, 2024
Source: Bloomberg, J.P. Morgan and AB

Past performance does not guarantee future results.
IG: investment-grade; OAS: option-adjusted spread. Middle display average since January 1, 2000

EMD

We See Opportunities in Emerging-Market Corporates

EM Corporates Exhibit Lower Leverage than DM Counterparts

Through June 30, 2024
Source: Bank of America, Bloomberg, J.P. Morgan and AB

EM IG Corporates Offer a Spread Pickup over US IG

Through December 31, 2024
Source: Bloomberg and AB

Areas We Like in Emerging Markets

Current analysis does not guarantee future results.
bps: basis points; DM: developing-market; EM: emerging-market; IG: investment-grade; HY: high-yield
EM HY Corp. is represented by J.P. Morgan CEMBI Broad Diversified-HY; US HY by Bloomberg US High Yield; EM Corp. by J.P. Morgan CEMBI Broad Diversified; Euro HY by Bloomberg Pan-European High Yield; EM IG Corp. by J.P. Morgan CEMBI Broad Diversified-IG; EM sov. by J.P. Morgan EMBI Global Diversified; US IG by Bloomberg US Corporate Investment Grade; and Euro IG by Bloomberg Pan-European Aggregate Corporate. 

Equity

Global Equity Market Gains Were Powered by US Large-Caps in 2024

MSCI ACWI: Jan–Dec 2024

As of December 31, 2024
Source: FactSet, FTSE Russell, MSCI, S&P and AllianceBernstein (AB)

Regional Returns: Jan–Dec 2024*
USD (Percent)

As of December 31, 2024
Source: FactSet, FTSE Russell, MSCI, S&P and AllianceBernstein (AB)

Past performance and current analysis do not guarantee future results.
*US large-caps represented by S&P 500, China by MSCI China A Index, US small-caps by Russell 2000 Index, Japan by MSCI Japan, UK by MSCI United Kingdom, emerging markets by MSCI Emerging Markets Index, Australia by MSCI Australia Index and Europe ex UK by MSCI Europe ex UK Index.

© AllianceBernstein L.P.