US stocks stand out, with equity markets up 25 percent in 2023. and climbed to new highs in the third quarter of 2024. That rally was supported by solid U.S. economic growth, around 3 percent year-on-year, and inflation falling from 9 percent to 3 percent in early 2024.

Looking ahead, the macro forecasts for 2025 of Columbia Threadneedle are quite bullish on the outlook for US equity earnings growth in 2025, putting it at around 15 percent.

However, the firm noted that this resilience was “somewhat surprising” given the expected risks to the global economy in 2025.

Although in 2024 no slowdown has yet been noted, continued geopolitical tensions pose a significant risk, the firm warned.

The war in Ukraine continues without apparent resolution, it said, while the situation in the Middle East escalated despite calls for a ceasefire.

“Both are human tragedies first and foremost, but our job is to look beyond that to the economic consequences. Short-term volatility is a real concern, and longer-term the possible re-emergence of inflationary pressures, both of which will hit companies directly,” said Columbia Threadneedle.

Additionally, he highlighted recent political changes in the US, including Donald Trump's victory in the presidential race and Republicans regaining control of Congress, noting that they could lead to changes in tax policy, regulations and international trade.

"Economic nationalism is increasingly intruding," the firm said. “Tariffs and sanctions tend to be retaliatory and have the potential to spiral. This is likely to be an important topic in the coming years.

Columbia Threadneedle also expressed uncertainty about inflation going forward, noting that interest rate cuts next year are unlikely to be as deep as in 2010, with core U.S. inflation currently around 2.5 percent, and core inflation is closer to 3 percent.

"This will have implications for investors and the way they position portfolios," the firm said.

Stocks, especially in a falling interest rate environment, remain attractive, it said, but the likelihood that interest rates will not return to historic lows means that companies' capital allocation decisions will be critical to navigating the next period.

The US remains the most expensive stock market globally, trading at more than 25 times forward earnings. By comparison, the MSCI All-Country World Index (excluding the U.S.) trades at just 16.3 times forward earnings — the largest spread in more than two decades.

However, according to Columbia Threadneedle, the dynamics of the US market, driven by sectors such as semiconductor equipment and artificial intelligence, offer strong growth potential.

However, it notes that the US market could become too expensive, with a likely underperformer when other regions experience faster growth.

"If, for example, Europe grows faster, it will look attractive because it is much cheaper. Do we expect it to? No. Elsewhere, China disappointed in 2024. and although we now see stimulus coming, will it be enough to spur higher sustained economic growth?

"Combined with challenges around demographics and uncertainty around tariffs and global trade, there is some risk."

Looking ahead and beyond 2025, the firm expects to continue investing in alternative energy as part of the energy transition, but political and pragmatic considerations could dilute targets beyond the 2030 deadline, he warns.

Concern for the New Year

Another concern for 2025. is the growing budget deficit in major economies, including the US, Japan, the UK and much of Europe, all of which run deficits between 5% and 6%.

While he deemed those deficits "manageable" in a low-interest-rate environment, the combination of growing deficits and rising interest rates could become "increasingly problematic."

"When this eventually becomes a focus, it will become a market driver," the firm said.

Overall, the firm said global equities will need to stabilize geopolitical risks, moderate growth and steady but low inflation, coupled with a favorable interest rate environment, for global equities to outperform.

"So while we expect gains, we would not expect a continuation of the 20-25 percent growth in the US stock market," the firm said.