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Q2 2025

Capital Markets Outlook

May 2025

 

 

 

 

Highlights

Macro
  • The global economy Is likely to slow in the face of increasing uncertainty.
Rates
  • The Fed can afford to be patient for now; cuts are likely later this year

  • Duration and yield-curve positioning may add value if growth slows
Credit
  • Investment-grade corporates can help diversify investors’ credit allocation.
Emerging-Market Debt (EMD)
  • We see opportunities in EM corporates.
Equity
  • Regional returns diverged in volatile first quarter

  • Sector and style trends shifted as technology and growth underperformed
 
  1. Rates
  2. Credit
  3. EMD
  4. Equity

Macro

The Global Economy Is Likely to Slow in the Face of Increasing Uncertainty

Global macro outlook: The next six months

As of April 3, 2025
Source: AB

Current analysis and forecasts do not guarantee future results.

Rates

Duration and Yield-Curve Positioning May Add Value if Growth Slows

PMI Slowed After Trump’s First Trade War

As of April 10, 2025
Source: Bloomberg, Federal Reserve Bank of St. Louis, Institute for Supply Management, Thomson Reuters and AB

Historically, Curves Steepen During Easing Cycles; 5s/30s* Is Still Below Historical Average 5s/30s curve (percent)
5s/30s curve (percent)

As of April 10, 2025
Source: Bloomberg, Federal Reserve Bank of St. Louis, Institute for Supply Management, Thomson Reuters and AB

Past performance does not guarantee future results.
PMI: Purchasing Managers’ Index. Historical average since January 1, 1990
*5s/30s: Difference between the current yield on the 30-year US Treasury and the five-year US Treasury 

Credit

Investment-Grade Corporates Can Help Diversify Investors’ Credit Allocation

Yields Are Compelling, While Spreads Are Still Tight
Percent

Average since January 1, 2000
As of April 4, 2025
Source: Bloomberg and AB

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

Duration represented by Bloomberg US Corporate Option-Adjusted Duration; BBBs represented by Bloomberg US Corporate Baa.
As of April 4, 2025
Source: Bloomberg and AB

Spread Compression in Recent Years Is Largely Driven by the Long End
OAS (basis points)

Index represented by Bloomberg US Corporate.
As of April 4, 2025
Source: Bloomberg and AB

Historical and current analyses do not guarantee future results.
IG: investment-grade; OAS: option-adjusted spread

EMD

We See Opportunities in Emerging-Market Corporates

EM Corporates Offer Strong Risk-Adjusted Returns…
Sharpe ratios (2015–2025)

As of March 31, 2025
Source: Bloomberg, J.P. Morgan and AB

…with Robust Fundamentals
Net Leverage

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

BB-Rated Corporates Offer Attractive Spread Pickup with Minimal Default Risk

Shows spread as of April 8, 2025, and average default rate from 2010 to 2024
As of April 8, 2025
Source: Bloomberg, J.P. Morgan and AB

Current analysis does not guarantee future results.
EM: emerging-market; IG: investment-grade; HY: high-yield; Sov.: sovereigns
EM HY corporates represented by J.P. Morgan CEMBI Broad Diversified-HY; US high yield by Bloomberg US High Yield; EM corporates by J.P. Morgan CEMBI Broad Diversified; European high yield by Bloomberg Pan Euro High Yield; EM IG corporates by J.P. Morgan CEMBI Broad Diversified-IG; EM sovereigns by J.P. Morgan EMBI Global Diversified; US investment-grade corporates by Bloomberg US Corporate Investment Grade; global aggregate by Bloomberg Global Aggregate; US aggregate by Bloomberg US Aggregate; and Euro IG by Bloomberg Pan European Aggregate Corporate.

Equity

Regional Returns Diverged in Volatile First Quarter

MSCI ACWI: January–March 2025

As of March 31, 2025.
Source: FactSet, FTSE Russell, MSCI, S&P and AllianceBernstein (AB)

Regional Returns: January–March 2025*
USD (percent)

As of March 31, 2025.
Source: FactSet, FTSE Russell, MSCI, S&P and AllianceBernstein (AB)

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

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