The impending regime change in January brings with it a number of policy and regulatory shifts likely to carry lasting impacts for markets. Joseph Amato, President and CIO- Equities at Neuberger Berman discussed the nuanced market outlook heading into 2025 in a recent CIO Weekly Perspectives post.
“While we and many others have spent countless hours analyzing policy implications that could result from this election, it’s important to remember that earnings drive equity markets more than any other factor,” Amato explained.
The third-quarter earnings season reflected ongoing economic recovery and growth, particularly compared to this time last year. What’s more, growth appears to be broadening again. Amato reported a greater number of “median” stocks catching up to the S&P 500’s growth, dominated by large-cap outperformance.
“We believe disinflation and a path to a 4% policy rate is being baked into investors’ expectations, allowing the focus to shift from inflation and central banks to the fiscal and growth backdrop,” said Amato.
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What a Nuanced Outlook Means for Investors
So what does it mean for investors looking ahead to 2025? According to Amato, investors will need to evaluate policy impacts on an individual region, sector, and stock basis, given the complex environment.
The energy sector is a prime example of the nuance investors will likely contend with in the coming months. Markets are touting a second Trump term as very supportive for fossil fuels and harmful for renewables. Of particular concern is the potential targeting of the Inflation Reduction Act, which contained the largest climate policy supports in U.S. history.
“But the IRA is creating thousands of jobs, primarily in Republican-controlled states, and renewables remain the quickest and cheapest market solution to the U.S.’s power scarcity,” Amato cautioned.
Republican election wins historically proved supportive for cyclical and infrastructure policies. It creates a strong case for industrials and their outperformance potential in 2025. Amato is quick to note that investor support of industrials reflects a belief that the IRA will avoid broad repeals.
Tariffs could also prove supportive for transportation companies within the U.S. like trucking and railroads. At the same time, they’re likely to prove harmful to transportation companies working across the border.
Within technology, easing of current antitrust regulations might benefit the sector as a whole. However, companies with elevated exposures to China could carry higher risk for investors. Add in the uncertainty regarding the funding that the CHIPS and Science Act currently provide, and it creates layers of complexity for investors.
Health care is another sector with a divide between potential winners and those facing challenges looking ahead. Some health care companies might thrive in a supportive environment for M&A activity and tax policies that benefit businesses. However, other companies, such as large-cap therapeutics, may carry higher risk due to uncertainties surrounding drug-pricing and more, Amato explained.
2025 Investing: "A New Era of Mercantilism and Protectionism"
Neuberger Berman believes the U.S. economy to be headed in a positive direction, one of nominal growth and declining interest rates and inflation. “However, we think it is important for investors to acknowledge that we have moved from an era of globalization, in which free trade enhances growth worldwide, to a new era of mercantilism and protectionism,” said Amato. Once Trump solidifies policies and government appointments, “we believe an active approach to managing risk and opportunity will be paramount.”
Neuberger Berman offers an range of actively managed ETFs for investors. These include the Neuberger Berman Core Equity ETF (NBCR ) with its focus on high-quality companies, and the Neuberger Berman Small-Mid Cap ETF (NBSM ). The Neuberger Berman Flexible Credit Income ETF (NBFC ) invests across a spectrum of credit securities and quality, domestic and foreign. Meanwhile, the Neuberger Berman Short Duration Income ETF (NBSD ) offers investment-grade, short duration bond exposure.
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