Staff Reporter
Despite a cautious close to 2024, analysts at UBS believe the stock market rally will carry on into 2025, fueled by several optimistic factors.
In December, the MSCI All Country World Index fell by 1.6%, while the S&P 500 dropped 2.4%. UBS attributes these declines mainly to low liquidity during the final trading days of the year.
Nonetheless, global stocks delivered a remarkable 20.7% return in 2024, with the S&P 500 leading the way at 25%. This marks the strongest two-year performance for U.S. large-cap stocks in this century.
Looking ahead, UBS expresses confidence in U.S. equities, forecasting that the S&P 500 will hit 6,600 by the end of 2025.
The firm cites several factors behind this optimism, including lower borrowing costs, strong U.S. economic activity, expanding earnings growth, increased monetization of AI, and the possibility of heightened capital market activity under a second Trump administration.
“We expect the S&P 500 to reach 6,600 by the end of 2025, and we encourage under-allocated investors to consider taking advantage of any short-term market fluctuations to increase their exposure to U.S. stocks, including through structured strategies,” the bank stated.
The report also underscores gold’s resilience, which saw a return of 27.8% in 2024, bolstered by central bank purchases and geopolitical tensions. UBS anticipates sustained demand for gold as a hedge, although it notes that exchange-traded fund (ETF) demand may moderate if the Federal Reserve implements fewer rate cuts than expected.
In the fixed-income space, UBS finds high-grade and investment-grade bonds particularly attractive. While the Federal Reserve’s hawkish outlook has shifted expectations regarding rate cuts, UBS suggests that cash rates could still decline if economic data unexpectedly weakens.
In the foreign exchange market, UBS advises investors to sell into any further strength of the U.S. dollar and diversify their holdings into currencies such as the British pound and Australian dollar. The firm points out that the U.S. dollar is currently overvalued.
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