- Global Investment and Multi-Asset Strategist
Skip to main content
- Funds
- Insights
- Capabilities
- About Us
- My Account
United States, Intermediary
Changechevron_rightThank you for your registration
You will shortly receive an email with your unique link to our preference center.
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
After riding into 2025 on a wave of election euphoria following Donald Trump’s win, the US stock market has struggled to find its footing so far this year. US yields have fallen, the US dollar has weakened, and there have been signs of a shift in market leadership. It’s a good time to review what’s changed and what it might mean for investors.
In my view, three things have changed since the election:
US politics — We are seeing a different President Trump in his second term. The general assumption at the beginning of the year was that he would talk big but act in a more measured way. Tariffs, federal employee firings, and DOGE cost cutting all point to Trump’s confidence that he has a mandate to take a more radical approach now, while more market-friendly policies, such as deregulation and tax cuts, may come later.
The US economy — There are early indications the economy is softening. Consumer sentiment has taken a hit on the employment and inflationary fronts, hinting at a less favorable growth/inflation backdrop. First-quarter forecasts for real GDP growth are being revised from positive to negative and the US 10-year Treasury is now below 4.25%. Hard data on employment, housing, and inflation will be important to track, to determine the significance of the January decline in retail sales data — the largest such slip in nearly two years.
Artificial intelligence — The megacap tech companies are still exceptional, but there has been more differentiation in their performance recently. Since DeepSeek disrupted the market in January, these companies have faced a growing number of questions about their $50 billion-plus in annual capital expenditures. If competitors can perform the same functions comparably and more cheaply, will that capex generate a sufficient return on investment?
One thing that hasn’t changed is the Federal Reserve’s reaction function. Sticky inflation turned the narrative early in the year to a more hawkish Fed with rate cuts this year almost completely priced out of the market. Today, about three cuts are priced in — a response to weaker sentiment and consumer spending. If inflation declines toward the Fed’s target of 2%, I expect policymakers to meet the market’s expectation of more cuts. Also, US equities are still expensive relative to other regions, at 22 times 12-month forward earnings.
Several market developments are top of mind:
Rotation of a different sort — The rotation within and beyond the US has been in full swing, with value outperforming growth and regional outperformance outside the US. However, this rotation has been somewhat unusual, given that small-cap stocks have not benefited while defensive sectors, such as health care and consumer staples, have. I suspect that allocators are justifiably building some defensive exposure into their portfolios with sectors and duration.
Companies feeling the effects of tariff plans — Tariffs are a negative for US growth and inflation. Many US industries rely on goods from the nation’s largest trading partners, and currency depreciation, which would offset higher prices for US consumers and manufacturers, will not work if countries retaliate with their own tariffs on US goods.
Europe’s gains — Europe’s recent outperformance has been driven by extreme negative sentiment, cheap valuations, hopes of an end to the Ukraine/Russia war, and some encouraging signs of the potential for more fiscal spending. With the ceasefire now less certain and signs that Russia could get more concessions than Ukraine, I do not expect the European rally to last long given higher valuations driven by multiples rather than earnings.
China’s comeback — Another “cheap” equity market, China is enjoying a resurgence as the property market slump shows signs of stabilizing, President Xi Jinping’s stance toward technology companies has become more supportive, and more fiscal stimulus could be coming in the face of higher US tariffs.
Focus on diversification — The European rally may have further to go in the short term, but I think a lot has been priced in as valuations have risen over the past two months. Still, it’s a good reminder not to stray too far from a diversified portfolio with both US and international exposures. Diversification may also help tamp down volatility in a politically uncertain environment.
Reassess fixed income exposure — The recent rally in the 10-year US Treasury is a good reminder that bonds can play a unique role in portfolios, potentially offsetting any equity underperformance. Gold could be another portfolio “enhancer” in this environment.
Investigate sector and regional opportunities — With the rerating of many European sectors, including financials, industrials and health care, it may be time to look at US sectors that have lagged, such as IT, communication services, and consumer discretionary. In addition, Japan has structural positives that the market has underappreciated recently amid concerns about interest-rate hikes by the Bank of Japan.
Avoid writing off emerging markets — If the US dollar continues to weaken, emerging market currencies and equities may be primed for upside, especially with the rally in China providing a better backdrop for EM performance.
Expert
Shrinking the government footprint: Deregulation and the US economy
Continue readingCLO equity returns in a tight spread environment
Continue readingNo more free lunch: Impact of higher interest rates on private equity
Continue readingA pivotal election result for Germany and Europe
Continue readingChart in Focus: Can quality hedge against inflation?
Continue readingMultiple authors
US debt dynamics: Is there a path to sustainability?
Continue readingURL References
Related Insights
Stay up to date with the latest market insights and our point of view.
Thank you for your registration
You will shortly receive an email with your unique link to our preference center
Shrinking the government footprint: Deregulation and the US economy
Macro Strategist Juhi Dhawan shares her view on the economic effects of the Trump administration’s efforts to slash red tape, including the impact on growth and inflation, as well as some of the potential drawbacks of this approach.
CLO equity returns in a tight spread environment
Our CLO experts discuss CLO equity investing in today's tight spread environment, focusing on arbitrage, optionality, and income potential.
No more free lunch: Impact of higher interest rates on private equity
We explain what the direct and indirect rate exposure of buyouts, venture capital, growth equity, secondaries, and fund-of-funds mean for investors.
A pivotal election result for Germany and Europe
Macro Strategists Eoin O’Callaghan and Nicolas Wylenzek share their initial observations on what the pivotal Federal election results in Germany could mean for investors.
Monthly Market Review — January 2025
A monthly update on equity, fixed income, currency, and commodity markets.
Chart in Focus: Can quality hedge against inflation?
Can Quality hedge against inflation? In this latest edition of Chart in Focus, we explore the historic outperformance of high-quality stocks and bonds during periods of high inflation, perhaps offering lessons should inflation surprise to the upside in 2025.
Multiple authors
US debt dynamics: Is there a path to sustainability?
How worried should investors be about US debt sustainability? Macro Strategist Michael Medeiros discusses the implications of soaring US federal budget deficits and the likely bond market response.
Time for credit selection to shine
Fixed income investors continue to seek answers to an era of volatile rates. Large, static exposures to credit markets no longer cut it. Instead, a nimble and dynamic approach is more likely to create resilient and consistent total return outcomes.
Private credit roundtable: Outlook in 2025
Our private credit experts explore the potential effects of Trump 2.0 policies — like tariffs and deregulation — on the asset class in 2025. In addition, they dive into the impact of higher-for-longer interest rates, the broadening of private credit markets, and much more.
Multiple authors
Sitting in the slack tide of US fiscal stimulus
Portfolio Manager Connor Fitzgerald profiles the risks of the Trump administration's policies around spending cut, tariffs, and immigration, and analyzes potential effects on US growth.
The US immigration crackdown: Weighing the economic implications
As the details of new US immigration policies come into focus, Macro Strategist Juhi Dhawan considers the risks they may pose for the labor market and the broader economy.
URL References
Related Insights
© Copyright 2025 Wellington Management Company LLP. All rights reserved. WELLINGTON MANAGEMENT ® is a registered service mark of Wellington Group Holdings LLP. For institutional or professional investors only.
Enjoying this content?
Get similar insights delivered straight to your inbox. Simply choose what you’re interested in and we’ll bring you our best research and market perspectives.
Thank you for your registration
You will shortly receive an email with your unique link to our preference center.
Monthly Market Review — January 2025
Continue readingBy
Brett Hinds
Jameson Dunn