Clear tailwinds are gathering behind equity markets, providing an upbeat outlook for stocks in 2025. The U.S. economy remains strong, boosted by healthy labor markets, surging business investment and strong profit growth. The U.S. Federal Reserve and other major central banks have initiated an interest rate cutting cycle, providing an additional tailwind for financial assets.
Against this backdrop, markets enter 2025 amid a post-election rally in the U.S., as investors focus on business-friendly initiatives of the incoming Trump administration. And while advances in artificial intelligence continue to get most of the headlines, participation in the market rally has quietly broadened across industrials, utilities, health care and other sectors, as well as small-cap companies.
“Valuations generally are quite elevated,” says Julian Abdey, an equity portfolio manager for The Growth Fund of America® and SMALLCAP World Fund®. “So I’ve been trying to strike a balance in portfolios, looking for exposure to leading companies in well recognized areas like AI, but also seeking opportunities in less scrutinized areas of the market.”