BofA projects productivity gains, policy shifts, and global trends shaping markets next year
BofA Global Research has shared its 2025 economic and market outlook, forecasting robust US economic and earnings growth compared to other developed economies.
The US economy is expected to remain strong, with productivity improvements and anticipated policy changes offering opportunities for investors. Projections suggest that the S&P 500 will begin the year on a strong note, closing 2025 at 6666.
The report highlights US economic growth as a key driver, with senior US economist Aditya Bhave forecasting GDP growth of 2.4 percent year-over-year in 2025.
Productivity gains and supportive fiscal policies are expected to play a critical role in outpacing global economic peers.
Federal Reserve policy is projected to include two interest rate cuts of 25 basis points in March and June, followed by a pause, while 10-year Treasury yields are expected to remain in the 4–4.5 percent range.
Candace Browning, head of BofA Global Research, noted that 2024 saw surprising growth and favourable inflation trends, enabling central banks to ease policy and risk assets to perform well.
She added that 2025 brings increased policy uncertainty, which could significantly influence US equity performance and global market reactions.
The outlook also anticipates varied performances across international markets. European equities may experience a decline of 7 percent in the Stoxx 600 index mid-year, with a recovery to current levels expected by year-end.
In China, real GDP growth is forecasted to slow to 4.5 percent year-over-year, but domestic demand stimulus is expected to offset the impact of tariffs over time, according to Helen Qiao, greater chief China economist.
Emerging markets are expected to face initial risks tied to US policy uncertainty.
However, David Hauner, head of Global Emerging Markets Fixed Income Strategy, suggested that as trade policies become clearer, these markets could offer investment opportunities.
Savita Subramanian, head of US Equity Strategy, predicts more than 10 percent upside potential for the S&P 500, driven by an estimated 13 percent earnings growth in 2025.
Cyclical sectors are expected to benefit from factors such as a Republican sweep, a productivity cycle, and recovery in manufacturing after years of underinvestment.
Commodity markets are expected to face mixed outcomes.
Francisco Blanch, head of Commodities and Derivatives Research, anticipates oversupply in oil and grains markets, while metals markets should remain balanced.
Gold prices are forecasted to peak at $3,000 per ounce, following early-year headwinds.
The US Dollar is expected to remain strong into the first half of 2025 before softening amid concerns over policy and growth.
Alex Cohen, senior FX strategist, noted that the outlook for the USD will likely shift in the second half of the year as growth drivers weaken.
BofA also foresees strong demand for credit in developed markets, marking the third consecutive year of positive total returns for credit.
