KANSAS CITY, Mo., Jan. 13, 2025 /PRNewswire/ — In its first 2025 investment outlook, the $270 billion* global asset manager American Century Investments focuses on the opportunities and risks that could arise in the new year with a new Congress sworn in Jan. 3 and a new administration to be inaugurated Jan. 21, while recognizing that overall, the market is in better shape now than it was a year ago.
“Looking into 2025, we’re in a much better position than last year. Some 12 months ago, the Federal Reserve (Fed) was still on hold, inflation seemed stuck above target and many were bracing for a recession,” said Victor Zhang, chief investment officer of American Century. “2024 was an eventful year, but the economy is still growing, inflation is heading in the right direction and central banks worldwide have embarked on rate cutting.”
Volatility expected but political uncertainty leaves wide range of possible outcomes
Although the market is overall in a stronger position relative to a year ago, the chief investment officers of American Century anticipate market volatility given the economic signs and changing political, regulatory and legislative landscape.
“Still-high interest rates, persistent above-target inflation and weaker labor market data may eventually weigh on the economy. We still believe the U.S. is likely headed for a slowdown in which flat to slightly positive economic growth will emerge. Accordingly, we expect uneven economic data combined with policy reveals to lead to continued bond market volatility,” said Charles Tan, co-chief investment officer for global fixed income.
While volatility is expected, it remains to be seen what the market impacts of the new administration will be, with a wide range of possible outcomes.
“Another big unknown is whether we will see more moderate or more aggressive policies from the new administration. The former would involve corporate tax cuts, lighter tariffs and immigration policies, and less regulation/more stimulative fiscal measures. This scenario might be beneficial for stocks because lower taxes and less regulation mean higher corporate profits and minimal disruption to the labor force and trade. More aggressive policies might be less favorable for financial markets. Higher tariffs, trade conflicts, and significant changes to the labor force could impact economic growth, hurt productivity, and promote inflation,” said Rich Weiss, chief investment officer of multi-asset strategies for American Century.
2025 opportunities in AI, automation, health care, financial sector and mergers and acquisitions
Whatever volatility is expected, Tan reminds investors: “As history has frequently demonstrated, volatility often leads to opportunities.” In the first quarter 2025 investment outlook, American Century chief investment officers identify several areas of expected opportunities:
“We’ve consistently argued that we’re still in the early stages of an AI revolution, with opportunities and impacts touching nearly every sector of the economy. Currently, much of the focus is on the chips themselves. However, the infrastructure needed to develop this technology has significant implications for data centers, power demand and the need for energy-efficient chips and cooling technology,” said Keith Lee, global growth equity co-chief investment officer of American Century.
“Factory automation is another long-running secular trend. These stocks have recently been volatile due to an industrial slowdown in the U.S. over the last year. However, we focus on companies that can innovate and strengthen their competitive positions over multiple economic cycles, not just in the short term. This trend has wide-reaching benefits, not only for the companies automating their processes but also for the robotics companies and parts suppliers that support this progress,” said Lee.
“Drug companies are identifying new approaches to treating diseases, making this segment a major secular driver of growth. Robotic surgery and medical device companies are making massive strides in providing more effective tools and procedures, resulting in better outcomes and fewer patient complications. Other companies are evolving to meet the demand for more cost-effective, accessible care,” said Lee.
“Trump’s winning may support a comeback for stocks in the challenged financials sector. Banks have rallied since Trump’s win. Bankers believe he may roll back the 2023 regulations, which include more stringent capital requirements. In addition, Trump-appointed officials will shape the Basel III Endgame, the final set of international banking regulations enacted after the Great Financial Crisis. These regulations cover capital rules, liquidity proposals and long-term debt rules,” said Kevin Toney, global value equity chief investment officer of American Century.
“There’s speculation that a Trump administration could loosen the federal government’s grip on mergers and acquisitions. The Biden administration was among the toughest in modern history on corporate dealmaking. Bank mergers took 42% longer to close under the Biden administration than during the first Trump presidency. While Trump may not take a hands-off approach to all corporate mergers — his first term showed he was willing to scrutinize technology deals — he might be more lenient with bank mergers,” said Toney.
2025 risks relate to corporate earnings, interest rates, the Chinese economy and tariffs
The chief investment officers at American Century also identified investment risks for 2025:
“Stock valuations are expensive based on what we believe are aggressive 2025 earnings expectations. With stocks at record highs, you should expect volatility if corporate America fails to hit these lofty targets,” said Lee.
“The average Chinese consumer has 70% of their wealth tied up in real estate assets, so consumption has slowed,” said Toney, affecting companies such as L’Oreal (luxury goods), A.O. Smith (water heaters), Fortune Brand Innovations (home products) and KONE (elevators).
“China’s extended property market downturn and weak consumer demand are hurting the sales of U.S. and non-U.S. companies that target the world’s largest consumer class,” said Zhang.
“Even while China’s consumption, construction and other economic activities are slowing, the country is still producing industrial materials and products. If it can’t use or sell those products domestically, China sends them elsewhere, which affects the global economy. With lower demand due to slowing construction, China is exporting steel in ever greater numbers. China exported 92.3 million metric tons of steel, a 39% increase from 2022. That depressed worldwide steel prices and resulted in U.S. tariffs on Chinese steel and other anti-dumping measures in markets like Japan and South Korea. Similarly, China is flooding foreign markets — particularly Europe — with electric vehicles that its domestic manufacturers continue producing,” said Toney.
“It’s uncertain whether President-elect Donald Trump will follow through on his promise to impose 60% tariffs on Chinese goods. If he does, the effects will be unpredictable,” said Toney.
“Trump appears likely to impose tariffs on select goods from China, but his broader tariff strategy remains unclear. Furthermore, the impact on inflation may not be as dire as the market expects, given that some tariffs could restrict demand and slow down consumption,” said Tan.
“Rising trade tensions are creating uncertainty for emerging markets, but some countries are less vulnerable due to their diverse economies, strong domestic markets and strategic trade relationships,” said Zhang.
Targeting great businesses as a North Star during volatility
Despite these large unknowns and risks, American Century chief investment officers continue to remind investors that staying invested, diversification and investing over the long term have been the best tools for successfully navigating political transitions in the past and taking advantage of market opportunities that do arise.
“While we’re mindful of economic and political conditions, they aren’t central to our investment strategy. We don’t think they should be the primary factor in your decision-making either. When it comes to investing, we’re trying to compound wealth for our shareholders over the long term. We’re trying to identify next decade’s winners, so we look beyond economic and electoral cycles. In other words, we focus on long-term fundamentals rather than short-term policy changes,” said Lee. “That’s why our North Star has always been to own what we believe are great businesses — those producing superior profitability and growth — with long runways of opportunity.”
American Century Investments is a leading global asset manager focused on delivering investment results and building long-term client relationships while supporting breakthrough medical research. Founded in 1958, American Century Investments’ 1,400 employees serve financial professionals, institutions, corporations and individual investors from offices in Kansas City, Missouri; New York; Los Angeles; Santa Clara, California; Portland, Oregon; London; Frankfurt, Germany; Hong Kong; and Sydney. Jonathan S. Thomas is president and chief executive officer, and Victor Zhang serves as chief investment officer. Delivering investment results to clients enables American Century Investments to distribute over 40% of its dividends to the Stowers Institute for Medical Research, a 500-person, nonprofit basic biomedical research organization. The Institute owns more than 40% of American Century Investments and has received dividend payments of more than $2 billion since 2000. For more information about American Century Investments, visit www.americancentury.com.
References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.
International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.
Historically, small- and/or mid-cap stocks have been more volatile than the stock of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.
Diversification does not assure a profit nor does it protect against loss of principal.
Generally, as interest rates rise, bond prices fall. The opposite is true when interest rates decline.
Past performance is no guarantee of future results. Investment returns will fluctuate and it is possible to lose money.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments’ portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
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