⚡ How Will Persistent Inflation Shape 2025 Strategies?
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Inflation, Rates, and Growth
Persistent Inflation and Rates Above 4.5%: Following President Trump’s re-election, policies like large-scale tariffs are expected to keep U.S. inflation elevated and interest rates above 4.5% well into 2025, compared to pre-pandemic levels of around 2.5%.
Infrastructure Equity Gains: Since 2001, infrastructure equity valuations have surged by 60%, outpacing private equity (40%) and real estate (20%), highlighting its resilience amid rising rates.
PMIs and Diverging Growth: With U.S. Q3 GDP growth at 4.5%, markets await November PMIs to gauge sustainability, while Europe shows unexpected recovery from 0.2% quarterly growth in Q2.
High Rates, Big Opportunities
S&P 500 Resilience: Despite a recent pullback, the S&P 500 remains up 23% YTD, driven by AI-driven earnings growth. Comparatively, 2023 YTD gains were 16%, marking a stronger performance this year.
Short-Term Bonds Shine Bright: As U.S. 10-year Treasury yields hit 4.5%, short-term credit offers compelling returns with reduced interest rate risk compared to long-term bonds, which hovered at 1.5% in 2020.
Emerging Markets’ Mixed Bag: While India shows robust growth, with GDP expected to expand 6.5% in 2025, China’s slower growth trajectory keeps investor caution high.
Long-Term Plays in a New Era
Tariffs and Treasury Yields: Persistent U.S. budget deficits and fiscal pressures could push long-term Treasury yields above 5%, compared to 3% in early 2024, requiring higher term premiums.
AI and Green Energy Drive Investments: Global capital flows into AI infrastructure and low-carbon projects are expected to top $1 trillion by 2030, reshaping industries and long-term returns.
Private Credit’s Role Grows: As traditional lending tightens, direct loans to SMEs are offering yields of 8%+, significantly higher than the 4-5% yields in corporate bonds, creating new opportunities in private markets.
Alessandro
Founder of Macro Mornings
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Disclosure
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.