10 Themes for 2025

To view the full article: Click Here
To watch the replay: Click here

Featuring: Lawrence V. Adam III, CFA, CIMA®, CFP® - Raymond James Chief Investment Officer

You are the latest contestants on our upcoming Ten Themes for 2025 webinar! This year, classic game shows are the inspiration for our top investing themes. From Wheel of Fortune to Jeopardy! to Family Feud, Chief Investment Officer Larry Adam pairs these classic game shows with the financial markets and the economy to articulate our 2025 views.

1. Optimism Overload: Family Feud May ‘Steal’ The Show

INSIGHT: Heading into 2025, consumer, business, and investor confidence has soared, particularly since the election. However, this confidence masks some underlying risks. The sequence, timing, and magnitude of new policies will directly impact the economy.

BOTTOM LINE: Volatility, currently at historically low levels, will likely increase in the upcoming year. We caution investors from becoming overly complacent as the market is set up for disappointments.

2. US Economy: Deal or No Deal

INSIGHT: While economic growth is likely to moderate in 2025, we expect to achieve the fifth consecutive year of positive growth (RJ 2025 GDP forecast: 2.4%). We think the recessionary ‘bad cases’—such as a Fed-induced over-tightening cycle, a crash in consumer spending, and plummeting business spending—have been taken off the board.

BOTTOM LINE: A resilient consumer, healthy job growth, and corporate and government spending all remain supportive of the economic expansion. Assuming the Fed cooperates, the US economy should remain a standout compared to other developed market economies.

3. Monetary Policy: The ‘Newlywed’ Game

INSIGHT: A continuation in the disinflationary process (at a slower pace), combined with healthy but slowing job growth should keep the Fed on the path of easing rates. However, wildcards remain, as the potential inflationary impact of tariffs could impact the trajectory of monetary policy.

BOTTOM LINE: We expect the Fed to cut rates twice in 2025. As the soft landing remains intact, the economy and risk assets should do well regardless of the number of times the Fed cuts rates.

4. Fixed Income: Jeopardy- Mastering the Yield Board

INSIGHT: Treasury yields continue to balance conflicting dynamics. The end of quantitative tightening, strong demand, and the reinstatement of the debt ceiling provide downside to yields, while stronger economic growth, elevated debt levels, and tariffs give upside risk to yields. Ultimately, we expect yields to be range-bound in 2025.

BOTTOM LINE: We believe longer-term interest rates will be range-bound for much of the year and end up only slightly higher by year end (2025 Year-end 10-year Treasury yield: 4.50%).

5. Equities: Is the Price or P/E Right?

INSIGHT: After back-to-back years of 25% gains, fundamentals for the equity market remain solid. However, with limited room for additional P/E expansion ahead, investors should dial back their return expectations in 2025. Earnings will need to be the driver of market performance going forward.

BOTTOM LINE: We expect the S&P 500 to rise to 6,375 by the end of the year – driven in large part by earnings growth. However, volatility will likely be elevated throughout the year.

6. Equity Sectors: Are You Smarter Than a 5th Grader?

INSIGHT: In an environment with stretched valuations, focusing on longer-term themes with a favorable macro backdrop and solid earnings growth will remain important. Technology, Industrials, and Health Care are our favorite sectors in 2025.

BOTTOM LINE: Innovations in Technology and Health Care, along with continuing government spending and reshoring connected to Industrials, will be strong tailwinds for these sectors in 2025.

7. Mid-Cap Equities: Squaring Up the Market's Sweet Spot

INSIGHT: While large-cap equities have been the dominant performer over recent years, mid-cap equities will likely provide a balanced approach in 2025. Solid earnings growth, attractive valuations, and insulation to tariffs are all supportive of mid-cap equities.

BOTTOM LINE: Relative to small-cap equities, mid-cap equities are a fundamentally more solid approach to play a potential broadening in equity performance in 2025.

8. International Equities: The Weakest Link

INSIGHT: US equities have been the strong outperformer relative to global equities over recent years. Since US economic and earnings growth should remain superior to international in 2025, we expect US equity outperformance to continue.

BOTTOM LINE: We continue to prefer US equities over international in 2025. However, within DM, Japan should outperform Europe as an improving economy should support the Japanese equity market.

9. Selectivity and Risk Management: ‘Minute to Win It’ Returns a Thing of the Past

INSIGHT: In an environment of stretched valuations—which will likely drive increased volatility and more muted returns—the quick, ‘Minute to Win It’ gains we've seen over the past two years will be harder to achieve.

BOTTOM LINE: We caution investors against taking on excessive risk across asset classes. Higher beta asset classes without a solid fundamental backdrop will likely face difficulties in the coming year. 2025 will likely be a year in which active management, especially in commodities, emerging markets, and small caps, proves its worth.

10. Asset Allocation: Playing the Wheel of Fortune

INSIGHT: Amidst the uncertainty of the coming year, it's important to remember the goal of investing: to build wealth. Sticking to a long-term asset allocation will be critical to deal with the unpredictability of the market in the year ahead.

BOTTOM LINE: America's wealth has grown to record highs. But don't spin the ‘Wheel of Fortune’ on your own! Your advisor is like the 'phone-a-friend' or 'lifeline' you can rely on to answer your questions and help guide you to your financial goals.