THE economy has reached a “period of normalisation” after the pandemic, with “normalisation in demand and supply and labour markets leading to normalisation in inflation, which is starting to creep into monetary policy”.
This was one of the key messages from Quilter Cheviot’s chief investment officer, Caroline Simmons, who was one of the panellists at the firm’s investment and economic outlook for 2025 webinar, which took place last week.
Saying that global GDP growth was predicted to hit around 3% this year, Ms Simmons added that: “Inflation is now close to target in most regions, which means that we are looking at a moderate outlook economically and can therefore expect moderate returns from the investment landscape.
“For equities, we are probably looking at high-single-digit returns this year, and therefore a balanced portfolio is likely to deliver mid-single-digit returns.”
With the webinar taking place two days after Donald Trump’s inauguration, there was a strong focus on the recent performance of the US markets, and also an assessment of the probable impact that the newly elected President’s policies might have.
“The US performed so well last year, mainly because of earnings growth and valuation ratings,” said Ms Simmons. “Last year, the MSCI North America market was up around 27%, with 70% of that growth coming from the ‘Magnificent Seven’. If you compare that with other countries, the UK saw flat earnings growth in 2024, with that situation driven predominantly by GDP and inflation.
“While we expect the US to continue to move higher this year, we don’t expect it to outperform other markets to the extent that it did in 2024. While the technology sector is still likely to see higher earnings, we anticipate a broadening of the market both in terms of global equity and within the US market.”
Highlighting that the performance of investment markets is influenced by consumer confidence, Chris Beckett, Quilter Cheviot’s head of equity research, said that confidence was higher in the US than in the UK and Europe.
“US consumers appear to have taken the change of government relatively positively, probably because wages are going up and inflation is now just below 3% – down from a peak of over 9% in 2022 – so people are seeing an increase in their real living standards,” he said.
“While consumer confidence in the UK is better than it was, it is still a lot lower than in the US, which is creating a difficult environment for retailers. Meanwhile, negative headlines about the stagnation of the UK economy and warnings of tax increases and possible spending cuts are likely to impact confidence and spending.”
But while there are challenges, Mr Beckett said that investment opportunities remained.
“We look for structurally advantaged businesses that will be successful in the future but which have attractive valuations,” he said. “While companies such as Microsoft and Netflix are attractive as companies you couldn’t live without, I also like firms which are generating high levels of cash. The banking sector is also attractive at the moment, with levels of excess capital in the sector generating dividend and share-buyback opportunities for investors.
“We also look at companies which are out of favour with investors at the moment but which we think are great over the long term. An example of this is Diageo, which, although affected by the prospect of tariffs imposed by the new US administration, has the potential to be successful over decades to come.”
Against this backdrop, Mr Beckett said he was “cautiously optimistic” that investors could look forward to a “reasonable year in terms of economic growth”, and that most of his “favoured companies should see high-single-digit growth”.