Top Economic and Market Themes for 2025

By Daniel Morgan, Synovus Trust Senior Portfolio Manager
Synovus Trust Company, N.A.

Well, it is that time of the year for market performance predictions for the upcoming year. After back-to-back, double-digit performance in the broader equity benchmarks in 2023 and 2024 it seems hard to believe a repeat performance in 2025 is in the mix. That said, let’s examine some of the key headwinds and tailwinds that should impact market performance for 2025.

• Continued GDP Growth: The U.S. economy could see a healthy Gross Domestic Product (GDP) growth of around 2.1% to 2.5%, fueled by upper-income spending, artificial intelligence (AI) investments and government policy. The incoming Trump administration could push economic growth even higher, depending on whether the new administration is serious about the fiscal deficit or not.
• Strong Corporate Earnings: A healthy mix of mid-single-digit revenue growth and margin expansion drives 2025 and 2026 earnings per share (EPS) growth forecasts of 13% and 12%, respectively. Expect the recent broadening in earnings growth to continue in 2025 as the Federal Reserve System (the Fed) cuts rates into next year and business cycle indicators continue to improve.
• Favorable Tax Policy Environment: Extension of the 2017 tax cuts and targeted regulatory relief could further boost business investment and growth.
• Tariffs “Bark Worse Than Their Bite”: Many argue that President Donald Trump’s tariffs 2.0 are going to be extremely similar to the Trump tariffs 1.0 and thus have little to no effect on inflation. Despite enacted tariffs in 2018, the U.S. did not experience any significant inflation. Further, it is important to consider that Trump’s tariff threats in 2025 might turn out to only be a negotiating tactic. (side note: Joe Biden and his administration continued many of Trump’s 1.0 tariffs).1
• Size of Expected Fed Cuts May Not Materialize:With persistent core inflation and concerns that Trump's policies may exacerbate inflationary pressures, the Fed may ease monetary policy at a more deliberate pace than anticipated.
• Persistent Inflation: Despite easing rent pressures, rising commodity prices and a potential bottoming out of goods prices could keep core inflation stubbornly high, above 3.0%. This may keep borrowing costs elevated with the 10-year UST yield “North” of 4.5%.
• Government Deficits: One of the largest long-term risks to the U.S. and global economy will be whether the U.S. can cut cost and orient strategic investment in a way that allows the U.S. to outgrow its debt? OR will continued deficit spending move the U.S. fiscal situation further into dangerous waters?
• Stock Market Expansion Grows Legs:The last two major Bull Markets – that lasted from June of 1949 to February 1966 (16.7 years); and August 1982 to March 2000 (17.6 years) – combined for an average duration of 17.2 years. This current Bull Market that began in March of 2009 will turn 16 years this upcoming March. So, the current Bull phase is definitely in the fourth quarter compared to previous cycles. Can this Bull Market sequence extend into 2025? It seems that the conditions are favorable: Accommodating Fed, Positive GDP growth, Double-digit S&P profit growth, and a more normalized yield curve. These conditions are offset by: Inflated P/E market multiple of 24x earnings and persistent core inflation.

So, what can we conclude from all this information? Barring some unforeseen event like a credit crisis, a terrorist attack, or an escalation in hostilities from an external source – such as Ukraine/Russia or China/Tiawan – overall market conditions appear favorable. Investors must remember that the law of averages is catching up to this Bull Market phase and eventually something will happen that will bring it to an end. I think the best advice is to tread carefully and keep your eyes wide open for any changes in the broader fundamentals.