Investment Outlook: Picking ‘Top Trumps in 2025

2025 - A promising backdrop for selecting 'Top Trumps'

Considering the impact on markets of potential policy changes from the incoming US president, the game of 'Top Trumps' could be an apt way to determine how investors should navigate 2025.

First released more than 40 years ago, Top Trumps uses cards that contain a list of numerical data based on various themes, such as cars, boats and aircraft. The aim of the game is to beat your opponent’s card by comparing values and using probabilities. Investors can take a similar approach in using financial and economic metrics to find the Top Trump market opportunities. 

As a starting point, it is worth thinking about what the investment environment might look like. Building on the post-pandemic recovery dynamics of the last few years, we believe this year will see relatively solid global economic growth, policy easing and further technological innovation.

On growth, Bloomberg’s survey of economists forecast global real Gross Domestic Product (GDP) to expand by 3% in 2025, roughly in line with the long-term average.¹ Leading the way is the US economy, where president-elect Trump is likely to bring in tax cuts and introduce significant deregulation – see Trump’s return: What it means for your investments and finance future.

Lower inflation and solid labour markets should bolster real consumer spending power globally. The wealth created from rising asset prices in the last couple of years can support consumer and business sentiment to lift growth and create a virtuous circle. 

On policy, central banks across Europe and the US are projected to cut interest rates, while China is employing fiscal policy to stimulate the economy on top of its monetary easing – see our Investment Outlook, Easy does it for central banks and China. With an upcoming German federal election in February, a French political crisis and more relaxed UK government borrowing rules, policy will likely be loosened in Europe. This easing should support the global economy. 

On technological innovation, investment in the artificial intelligence (AI) theme is buoyant. Bloomberg forecasts that generative AI will grow by an annualised rate of 43% over the next decade.² The big unknown for investors is whether AI can be monetised and raise the productive potential of the global economy to justify current valuations - see our Investment Outlook: Breaking down the enigma of artificial intelligence. 

Five top trumps for 2025

We identify the five top trump themes and opportunities that stand to benefit from this promising environment.

1. Equities to outperform government bonds. The ongoing economic expansion and growth of company earnings provide a central reason to prefer equities, rather than bonds. Furthermore, available shares are becoming scarcer when compared to bonds. Morgan Stanley estimates that from 2000 to 2023 US public companies issued around $10 trillion in shares but retired around $14 trillion³. In contrast, there is a rising supply of government debt with few politicians willing to tackle the unpopular decision to reduce social welfare costs in developed economies.
2. Exceptional US equities. The strength and vibrancy of the US economy, along with innovation in the tech sector, has driven US company earnings and market performance over the past decade (see chart below). Since the global financial crisis in 2008, US Listed companies have, on average, grown their reported trailing earnings per share (EPS) by around 6% per year more than non-US peers.⁴ Aside from earnings, US firms have also demonstrated a shareholder-friendly focus. The return on equity (defined as net income over shareholders capital) is nearly 16% for the US, but only around 11% for non-US equities.⁵ In other words, US firms tend to use shareholders’ funds more effectively than their peers.
3. Selected cyclical sectors. Our proprietary methodology considers global equity market sectors thorough a factor-based lens. We evaluate the prevailing macro environment, along with valuation, price momentum and risk for all the companies within each sector. This data-led process leads us to favour some of the more cyclical areas of the market, like financials and real estate which look inexpensive and are exhibiting good price momentum. Industrials and the consumer discretionary sector also look attractive on a valuation basis.
4. Gilts over treasuries. In 2025, we expect central banks to continue their easing cycles as they look to nudge inflation back towards the 2% target while avoiding an economic slowdown. Much will depend on the economic policy agendas of new administrations in the US and UK. We think that president elect Trump’s policy agenda is likely to be more expansionary compared with the policies pursued by the Labour party in the UK. If Trump follows through on his stated aim of imposing tariffs on trading partners, then this could lead to higher inflation. With gilts also trading cheap compared to US treasuries, we currently prefer them over treasuries.
5. Join the gold rush. The gold price has been lifted by official purchases in emerging economies following Western financial sanctions against Russia in 2022 – see our May 2023 Investment Outlook, A golden message for financial markets. In addition, gold may offer investors portfolio protection against downside risks. When interest rates rose in 2022, both equity and bond prices fell, but the gold price was roughly stable during this time. The need for assets in a portfolio which are uncorrelated to equities adds another layer of demand for gold. Ultimately, increased demand for bullion has offset the opportunity cost of owning a zero-yielding asset, like gold, even though interest rates have gone up.

Risks to our view

There are plenty of potential pitfalls that investors need to be wary of in 2025. We focus on three areas to be mindful of.

1. Bond market uncertainty. If US economic growth and inflation surprises on the upside, interest rates might not fall as expected. The Fed might even have to tighten again. Treasury yields could then rise, possibly leading to price volatility within the broader bond and stock markets. An ongoing concern is whether investors will continue to refinance mounting government debt.
2. Market concentration risk. The market value of the Magnificent Seven* stocks has risen to a record 35% of the US S&P 500, lifted by buoyant expectations of growth within the AI theme.⁶ Should investor enthusiasm for AI deteriorate, it could lead to sell-off in US (and global) equity markets. 
3. Geopolitics. It remains unclear how geopolitical tensions under an isolationist Trump administration will fare. Trump has said he intends to broker a truce in the war between the Ukraine and Russia, but he could initially escalate tensions with China through trade tariff hikes. To distract from the economic malaise in China, President Xi could react with a blockade or invasion of Taiwan. Trump’s inbox also includes tackling flare-ups in the Middle East. Global markets will be especially sensitive to any event that disrupts the supply of oil and gas from the region.

What to own in 2025

We think the backdrop appears relatively benign for investors. Our base case of solid global growth should support company earnings and equities.

However, refinancing issues over mounting public debt could inhibit government bond returns. In 2025 investing isn’t about holding all the cards but knowing which ones to play and to stick with them.

Sources and footnotes

1,2 Bloomberg

3 Morgan Stanley, Which one is it?, Equity issuance and retirement, 24 July 2024

4,5,6, LSEG, Evelyn Partners