Animal spirits revived as markets start the year

Macroeconomic update for February 2025

About a week into Donald Trump’s presidency, it appears that markets’ animal spirits are still unleashed. While investors are optimistic about expected deregulation, tax and spending cuts, they are also keeping a close eye on interest rates and inflation data. The revelation of China's cost-efficient AI solution has unsettled markets, raising questions about high tech valuations. Superior US economic growth was already expected to broaden gains into non-tech sectors, keeping US equities overall in favor. For now, we maintain our view that monetary policy is likely to remain supportive, with expectations for continued rate cuts this year, the absence of a second wave of inflation, and a labor market that continues to show signs of weakening.  As such, we have a moderate risk-on stance.

Key Takeaways

1. US equities
   Despite high valuations, the Multi Asset Boutique remains invested in US stocks amid an outperformance of their peers and higher EPS growth forecasts.
   
   
2. Downward path?
   Without a second wave of inflation and an unexpectedly strengthening labor market, the Multi Asset Boutique believes the US Federal Reserve will continue to cut interest rates.
   
   
3. The “4.5%» threshold
   The Multi Asset Boutique is keeping an eye on the risk of higher for longer yields on equities, as yields rising above 4.5% tend to weighon markets.

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