The world is experiencing a new environment marked by a cycle of interest rate cuts by the major central banks in developed markets, as well as in emerging regions. According to experts, over the past quarter, most monetary institutions have adopted a more cautious stance.
The best example of this is the Fed, which has once again shifted its focus to inflation, as economic activity has remained strong while disinflation has stalled. “The Fed maintains its data-dependent approach and is beginning to shift its attention to the labor market. We believe labor market conditions could shape the path of its future policy decisions. Similarly, the Bank of England and the European Central Bank also cut interest rates by 25 basis points in the third quarter of 2024, emphasizing data dependency without precommitting to any specific interest rate trajectory,” explain experts from Capital Group.
According to Invesco in its outlook for this year, rates remain generally restrictive in major economies but are easing. “On the one hand, the Fed is likely to remain neutral by the end of 2025, but improved growth prospects may delay rate cuts. On the other hand, European central banks are easing their policies, with relatively weaker growth than the U.S.,” they note.
Divergences in Monetary Policy
This reality brings us to a key conclusion: yes, we are in a cycle of rate cuts, but there will be noticeable divergences in the monetary policies of the major central banks. In fact, Capital Group believes that this divergence will play a significant role in the coming months.
This is reflected in the Central Bank Watch report, prepared by Franklin Templeton, which reviews the activity of G10 central banks, plus two additional countries (China and South Korea), along with their forecasts.
According to the report, the Fed’s shift in strategy has refocused its attention on inflation, as economic activity has remained robust while disinflation has stalled. “The policies of the newly elected president are also likely to influence the Fed’s interest rate projections, which currently only anticipate two cuts in 2025. Across the Atlantic, the European Central Bank and the Bank of England are observing insufficient growth but remain cautious about the future interest rate path, as domestic and geopolitical uncertainties remain high,” the report states.
“Monetary policy divergence is likely to remain a prominent theme in the coming months. The Bank of Japan remains the exception among developed markets, as it has embarked on a rate hike cycle to end an era of negative interest rates. We maintain a relatively cautious stance regarding Japanese rates, as the central bank may make further policy adjustments in response to potential currency pressures. In Europe, the trajectory of monetary easing could depend on the weight policymakers place on downside growth risks compared to the pace and progression of wage pressures and services inflation,” Capital Group experts emphasize.
Another conclusion from the Franklin Templeton report is that “most central banks have become more cautious than they were a quarter ago.” According to their analysis, while the Bank of Canada cut its benchmark rate by 50 basis points in December, this may be its last significant move. “The Riksbank also seems to be taking a more neutral stance, and we believe the Reserve Bank of New Zealand will need to implement fewer cuts than the market currently anticipates. Meanwhile, the Swiss National Bank and the People’s Bank of China remain the most dovish,” the report highlights, noting the behavior of other key monetary institutions.
Lastly, the document underscores that some central banks face a set of dilemmas. “We believe the Norges Bank will lower rates, likely in the first quarter, followed by the Reserve Bank of Australia in the second quarter. Both were among the last to join the easing trend. Meanwhile, the Bank of Japan is expected to continue raising rates gradually in 2025. However, we believe the rigidity of inflation gives the central bank ample room to adopt a more aggressive stance,” the report concludes.
Jupiter Asset Management has announced that the investment team and assets of Origin Asset Management, a global investment boutique based in London, were transferred to Jupiter on January 21, 2025. This integration follows the acquisition announcement made on October 3, 2024.
According to the firm, this addition strengthens its presence in the strategic institutional client channel and enhances its capabilities in emerging market equities, while also expanding its expertise in other multiregional equity strategies. The team, led by Tarlock Randhawa, includes Chris Carter, Nerys Weir, Ben Marsh, and Ruairi Devery-Kavanagh. As noted by Jupiter AM, the team’s solid track record is based on an investment process that combines a quantitative asset selection approach with proprietary algorithms and rigorous qualitative analysis.
Following the announcement, Kiran Nandra, Head of Equities at Jupiter, stated: “Origin is the latest example of Jupiter’s ability to attract highly successful investment talent with strong commercial vision. We aim to expand our investment capabilities to serve a wide range of clients. Last year’s arrival of Adrian Gosden and Chris Morrison, followed by Alex Savvides and his team, significantly strengthened our UK equities expertise. Likewise, we eagerly anticipate the addition this year of the prestigious European equities team comprising Niall Gallagher, Chris Sellers, and Chris Legg.”
For his part, Tarlock Randhawa, who leads the team, added: “We are excited to join Jupiter, where the active and differentiated management philosophy, combined with a strong client focus, is clearly evident. The transition for our clients will be seamless, and we believe they will benefit from Jupiter’s commitment to excellence in client experience.”
In December, the global ETF industry captured $207.73 billion, raising net inflows for all of 2024 to $1.88 trillion, according to the report by ETFGI. This marks a new record for the sector, surpassing the previous high of $1.29 trillion recorded in 2021 and, of course, exceeding the 2023 total of $974.50 billion.
Additionally, global ETF assets stood at $14.85 trillion in 2024, the second-highest level ever recorded, only below the record of $15.12 trillion in November of the same year. “Assets under management increased by 27.6% in 2024, rising from $11.63 trillion at the end of 2023 to $14.85 trillion at the close of 2024,” notes the latest report by ETFGI.
Regarding the behavior of flows, the ETFGI report shows that out of the $207.73 billion in net inflows, equity ETFs captured $151.58 billion, raising 2024 net inflows to $1.11 trillion, far exceeding the $532.28 billion in 2023. As for fixed income ETFs, these vehicles attracted $16.14 billion in December, bringing 2024 net inflows to $314.32 billion, higher than the $272.90 billion in 2023.
Looking at other asset classes, commodity ETFs reported net outflows of $1.11 billion in December, bringing 2024 net inflows to $3.91 billion, better than the net outflows of $16.88 billion in 2023. Meanwhile, active ETFs attracted net inflows of $41.78 billion in December, bringing 2024 net inflows to $374.30 billion, much higher than the $184.07 billion in net inflows in 2023.
According to Deborah Fuhr, managing partner, founder, and owner of ETFGI, “The S&P 500 index declined 2.38% in December but rose 25.02% in 2024. Developed markets, excluding the U.S. index, declined 2.78% in December but increased 3.81% in 2024. Denmark (down 12.34%) and Australia (down 7.90%) recorded the largest declines among developed markets in December. The emerging markets index increased 0.19% during December and rose 11.96% in 2024. The United Arab Emirates (up 6.42%) and Greece (up 4.21%) recorded the largest increases among emerging markets in December.”
Evolution of Offerings
The ETFGI report also highlights that the global ETF industry reached a new milestone with 1,988 new products launched in 2024. It explains that this represents a net increase of 1,366 products after accounting for 622 closures, surpassing the previous record of 1,841 new ETFs launched in 2021.
Specifically, the distribution of new launches in 2024 was as follows: 746 in the United States, 606 in Asia-Pacific (excluding Japan), and 323 in Europe. Additionally, a total of 398 providers contributed to these new launches, which are distributed across 43 exchanges worldwide. Notably, iShares launched the largest number of new products, with 96, followed by Global X ETFs with 69 and First Trust with 57.
“There were 622 closures from 177 providers across 29 exchanges. The United States reported the highest number of closures with 196, followed by Asia-Pacific (excluding Japan) with 156, and Europe also with 156. Among the new launches, there were 954 active products, 650 indexed equity products, and 191 indexed fixed-income products,” noted ETFGI.
Between 2020 and 2024, the global ETF industry experienced significant growth in the number of launches, increasing from 1,131 to 1,988. In 2024, the United States and Asia-Pacific (excluding Japan) recorded the highest number of launches, reaching 746 and 606, respectively, while Latin America had the fewest launches, with only 26. The United States and Canada achieved record numbers of new launches in 2024, with 746 and 189, respectively. Additionally, Asia-Pacific (excluding Japan) achieved its launch record in 2021, with 645; Europe set its record of 434 in 2021; Latin America recorded 41 in 2021; Japan reached 44 in 2023; and the Middle East and Africa achieved 86 in 2020.
80% of asset management and wealth management firms state that AI will drive revenue growth, while the “technology-as-a-service” model could boost revenues by 12% by 2028, according to the Asset and Wealth Management 2024 report by PwC. A significant finding is that 73% of organizations believe AI will be the most transformative technology in the next two to three years.
The report reveals that 81% of asset managers are considering strategic alliances, consolidations, or mergers and acquisitions (M&A) to enhance their technological capabilities, innovate, expand into new markets, and democratize access to investment products, in a context marked by a significant wealth transfer. According to Albertha Charles, Global Asset & Wealth Management Leader at PwC UK, disruptive technologies, such as artificial intelligence (AI), are transforming the asset and wealth management industry by driving revenue growth, productivity, and efficiency.
“Market players are turning to strategic consolidation and partnerships to build technology-driven ecosystems, eliminate data management silos, and transform their service offerings amid a major wealth transfer, where affluent individuals and younger audiences will play a more significant role in shaping demand for services. To emerge as leaders in this new digital market, asset and wealth management organizations must invest in their technological transformation while ensuring they reskill and upskill their workforces with the necessary digital capabilities to remain competitive and innovative,” explains Charles.
This focus will be critical in addressing an industry whose assets under management are expected to reach $171 trillion by 2028. According to PwC projections, the sector will see a compound annual growth rate (CAGR) of 5.9%, compared to last year’s 5%. Notably, alternative assets stand out, expected to grow even faster with a CAGR of 6.7%, reaching $27.6 trillion during the same period.
“Despite the potential of alternative assets, only 18% of investment firms currently offer emerging asset classes, such as digital assets, though eight out of ten firms that do report an increase in capital inflows,” the report notes in its conclusions.
Key Trends
Taking into account this growth forecast and the role technology will play, PwC’s report identifies several trends. The first is that tokenization stands out as a key opportunity, with tokenized products projected to grow from $40 billion to over $317 billion by 2028, representing a CAGR of 51%.
Tokenization, or fractional ownership, can democratize finance by expanding market offerings and reducing costs. According to PwC, asset managers plan to offer tokenization primarily in private equity (53%), equities (46%), and hedge funds (44%).
Another identified trend is the consolidation and development of technology ecosystems while talent remains the top priority. In this context, 30% of asset managers report facing a lack of relevant skills and talent, while 73% see mergers and acquisitions as a key driver for accessing specialized talent in the coming years.
“The conclusions of this report highlight the urgent need for asset managers and firms to rethink their investment strategies. Their long-term viability will depend on a radical, fundamental, and ongoing reinvestment in how they create and deliver value. Strategic alliances and consolidation will play a vital role in creating technology ecosystems that facilitate greater exchange of ideas and knowledge. Smaller players will be able to modernize their systems quickly and cost-effectively, while larger players will gain access to critical talent and information for growth, particularly as new and emerging technologies like AI transform the investment management landscape,” says Albertha Charles, Global Asset & Wealth Management Leader at PwC UK.
To prepare the report, 264 asset managers and 257 institutional investors from 28 countries and territories were surveyed.
Celeste Boadas Joined Raymond James for Its Private Wealth Management Division in Coral Gables.
Boadas joins as a Client Service Associate “with a dedication to excellence in customer service and a passion for fostering meaningful relationships,” says the firm’s statement.
With experience in the international insurance industry since 2016, she comes from Insigneo, where she held customer service roles between 2020 and 2024.
She holds a Bachelor’s degree in Fine Arts from the Art Institutes and an MBA in Strategic Business Management from ADEN Business School, with a specialization from George Washington University. Celeste has earned the SIE and Series 7 designations, “underscoring her commitment to professional growth and excellence,” adds the firm’s statement.
“Celeste assists clients by addressing their needs and inquiries regarding investment accounts with professionalism and efficiency. She also plays a key role in onboarding and managing client relationships, ensuring that every interaction is seamless and enriching. Her personal and detail-oriented approach sets her apart, allowing her to build trust and deliver personalized solutions,” the statement continues.
The advisor, originally from Venezuela, is an active member of the Body & Brain community and a certified sound healing practitioner in Miami.
Additionally, she volunteers in programs that promote balance and personal growth through body and mind practices. In her free time, she enjoys wellness activities that reflect her holistic approach to life and work, the statement concludes.
Capital Group, one of the world’s largest asset managers, announced the launch of its first ETF designed to track U.S. small- and mid-cap stocks—a segment of the ETF market where new fund launches remain relatively rare, according to a Reuters report.
“The U.S. Small- and Mid-Cap ETF by Capital Group opens a new business opportunity. It was the last remaining product the company needed to launch to implement its own model portfolios before the end of the first quarter of 2025,” said Holly Framsted, Head of ETFs at the Los Angeles-based firm.
According to Capital Group data cited in the Reuters report and based on comments from Todd Sohn, ETF strategist at Strategas, of the more than $10 trillion in assets invested in U.S. ETFs, only about $440 billion is currently allocated to small-cap holdings.
“This remains a space within the ETF realm that is full of opportunities,” said Sohn.
Sohn explained that most investors gravitate toward active stock selection when choosing a small-cap fund. This is because indexes like the Russell 2000 include many unprofitable companies, making the index-linked funds less attractive.
However, it has only been five years since the U.S. Securities and Exchange Commission (SEC) opened the door to actively managed ETFs, and small-cap ETFs are still working to catch up.
Managing a small-cap equity ETF also presents unique challenges. Unlike mutual fund managers, no ETF can close its doors to new investors if managers believe the strategy cannot absorb additional capital.
Holly Framsted further explained that one reason Capital Group opted to combine small- and mid-cap stocks in the same ETF was to maximize the team’s ability to handle large inflows effectively.
Photo courtesyAitor Jauregui, Head of Latin America, BlackRock
Three trends have defined the past decade in the asset management industry*: large firms have grown even larger—with the top 20% managing 45.5% of total AUMs in 2023, up from 41% in 2013. Passive management is here to stay, representing 33.7% of assets under management compared to 14.3% in 2013. Finally, alternative assets, also known as private markets, now account for 10% of global AUMs.
Here are three additional data points for context: between 2013 and 2023, passive management AUMs grew at a compound annual growth rate (CAGR) of 14.7%, while alternative asset AUMs grew at 14%. Meanwhile, total AUMs grew by just 5.3% annually.
In 2009, BlackRock became the largest asset manager by AUM and has maintained that position for the past 14 years. The firm has adapted to industry changes, prioritizing passive management with iShares since acquiring the company in 2009 and launching alternative investments for the wealth segment in 2011. This commitment has only deepened in recent years.
What’s next? What is BlackRock doing to maintain its leadership? In an interview with Aitor Jauregui, BlackRock’s Head of Latin America, conducted from the firm’s Miami offices, we discuss the changing landscape of asset management, focusing specifically on how these shifts are impacting wealth management professionals in the markets he oversees: US Offshore and Latin America.
Changes in the Wealth Segment: The Shift to Fee-Based Models and the Rise of Model Portfolios
Aitor Jauregui highlights two key changes in the segment. The first is the rise of the fee-based model (where clients pay for advice rather than transactions) and the growing role of technology, which, he says, “go hand in hand.”
He backs this up with data: “In the US domestic market, the fee-based model accounts for 53% of managed assets; in Europe, it’s 42%. In Latin America, it’s just 20%, but this breaks down to 35% for US Offshore and only about 12% for Latin America.” For Jauregui, what’s important is that “in a business growing at double digits, the fee-based segment is also growing at double digits. In US Offshore, the fee-based market has grown from 20% to its current 35%, and much of this shift from brokerage to fee-based is explained by the growing role of model portfolios.”
Model Portfolios and Technology: A Symbiotic Relationship
The growth of model portfolios has been driven by technology over the past two years. BlackRock has positioned itself as a leading provider of these portfolios for RIAs and fintechs in the offshore and Latin American markets, outpacing competitors.
“In 2024, 25% of BlackRock’s ETF flows in the offshore market came from model portfolios. In 2021, a year of strong ETF growth, only 3% came from model portfolios. This speaks volumes about the increasing adoption of model portfolios in this market,” Jauregui explains.
While BlackRock’s initial success in model portfolios was primarily supported by its iShares ETFs, the firm is now working to incorporate technological solutions that include alternative assets. “Through our partnership with Partners Group, we are developing solutions—currently only available in the US domestic market—that allow model portfolios to combine public and private assets, including BlackRock products,” Jauregui notes. While these solutions aren’t yet available offshore, their existence underscores the feasibility of integrating private assets into model portfolios, provided infrastructure challenges—like automating rebalancing for semi-liquid private assets—are addressed. “Evergreen solutions are increasingly common among private credit funds, which is the type of alternative asset we see the most demand for from our wealth clients.”
BlackRock Embraces the Rise of Active ETFs
A direct result of technology’s growing role is the ability to segment wealth clients and serve individuals with much smaller investable assets. Advisors in the ‘mass affluent’ segment, catering to non-US residents with investable assets between $500,000 and $3 million, can now efficiently serve clients primarily through model portfolios.
“In this segment, we are witnessing the rise of active ETFs. These products offer the benefits of active management with specific tracking error objectives, packaged in an ETF that provides transparency, liquidity, and cost efficiency.”
Currently, iShares offers eight active ETFs in UCITS format, all launched last year. “By 2025, we plan to continue providing solutions to our clients through active ETF vehicles, including systematic strategies in ETF format. We also anticipate greater innovation in iBonds, defined-maturity bond ETFs,” Jauregui concludes regarding future launches.
Private Markets: Inorganic Growth for Long-Term Goals
The past year has been eventful for BlackRock’s alternative asset unit. In January, the firm announced the acquisition of GIP, integrated on October 1, to expand in the infrastructure segment—a sector that globally requires significant investment beyond what governments can finance, opening the door to private investors. “Infrastructure includes not just ports, airports, and roads but also everything related to digitalization and artificial intelligence,” Jauregui points out.
One concrete initiative is the GAIIP partnership between BlackRock, GIP, Microsoft, and MGX—an Emirati sovereign technology fund—to invest up to $100 billion in infrastructure supporting data centers and their associated alternative energy sources, driven by the growing demand for AI.
In 2024, BlackRock also announced the acquisition of Preqin, a market intelligence leader for alternative assets. “We firmly believe in the need to continue investing in data analytics to bring greater transparency to private markets,” says Jauregui. He explains that Preqin, along with eFront (acquired in 2019), complements Aladdin, BlackRock’s public markets risk management software, by providing a private markets risk management solution.
The firm’s latest acquisition in alternatives is the private credit platform HPS Investment Partners, announced in December. Closely tied to the need for new energy and infrastructure is the need for new financing sources for the future. “Direct lending strategies will become increasingly important; both our institutional and wealth clients express significant appetite for opportunities in infrastructure and private credit,” Jauregui adds.
*Data from ‘The world’s largest 500 asset managers’ Thinking Ahead Institute and Pensions & Investments joint study | October 2024.
Bitwise Asset Management and VettiFi’s annual “Benchmark Survey of Financial Advisor Attitudes Towards Crypto Assets” showcased increased interest and the adoption of cryptocurrencies among financial advisors.
The survey followed a year marked by the approval of spot Bitcoin and Ethereum ETFs. Results showed that 56% of advisors are more likely to invest in crypto in 2025 due to the 2024 U.S. elections. Crypto allocation rates reached 22%, doubling from 2023 and marking the highest rate recorded in the survey’s history.
Client interest also remained high, with 96% of advisors reporting inquiries about crypto. Among advisors already allocating to crypto, 99% plan to maintain or increase exposure in 2025. Advisors who have not yet been assigned are showing more interest, with 19% considering investments, compared to 8% last year.
“But perhaps most staggering is how much room we still have to run, with two-thirds of all financial advisors -who advise millions of Americans and manage trillions in assets – still unable to access crypto for clients,” said Matt Hougan, Bitcoin CIO.
Despite these trends, access remains a barrier, with only 35% of advisors able to buy crypto in clients’ accounts. Additionally, 71% of advisors reported clients investing independently, presenting potential opportunities for wealth management services.
Survey respondents included over 400 financial professionals, spanning RIAs, broker-dealers, and wirehouses.
“Based on the latest data, the future is very bright as advisors and investors gain more access and education about the potential benefits,” said Todd Rosenbluth, Head of Research for TMX VettaFi
Family offices in the Americas are observing growing differences in priorities and approaches between founders and the next generation, according to new research by Ocorian.
The study, conducted among family office professionals in the United States, Canada, Bermuda, and the Cayman Islands, who collectively manage around $32.8 billion in assets, found that 93% point to generational differences within their families, and 33% consider these differences to be significant.
The biggest area of difference, identified by 68% of respondents, is investment in digital assets, while 52% highlight differences in ESG and impact investing. Approximately half mention discrepancies in the approach to private markets, while asset allocation and investment strategy are controversial topics for 34%.
These differences in approaches and priorities are driving a greater focus on succession planning, with all executives surveyed stating that more work is needed in this area.
93% report that there is a natural succession of wealth and leadership in the family offices for which they work.
On the other hand, 92% highlight that ensuring proper governance to meet the needs and expectations of family members is the biggest challenge they face.
The research also revealed that 77% say their family offices have become more professional in terms of operations and structure over the past five years. The remaining 23% state that their family office was already professional.
One important area of professionalization highlighted in the study is the strengthening or introduction of a family constitution, noted by 62% of respondents. More than half (54%) indicated that increased support from external providers has helped professionalize their family offices.
Ocorian is a global provider specializing in services for high-net-worth individuals and family offices, financial institutions, asset managers, and corporations, with a dedicated team to support family offices.
The latest data on the U.S. labor market, published last Friday, marked a turning point for assessing how the year has begun. It also serves as an opportunity to adjust some of the 2025 forecasts released by international asset managers.
The main takeaway from experts is that this latest data rules out an interest rate cut in January—the Fed meeting will take place on January 28–29. Meanwhile, markets have even begun shifting expectations for new cuts to the second half of the year. “Despite strong demand, wages did not respond to the increased labor market activity, as they rose by 0.3% compared to the previous month, the same as in November, and the year-on-year measure even fell to 3.9% from 4.0%. This aligns with central bankers’ assessment that, for now, there are no additional inflationary pressures coming from labor markets, and it is unlikely they will intensify their recent hawkish tone,” explains Christian Scherrmann, Chief U.S. Economist at DWS.
“With no clear signs of weakening, we suspect that the Fed will be happy to pause its easing cycle at its upcoming January meeting, as broadly indicated in December. We remain of the view that the Fed will make only one cut this year, and while we still foresee it happening in March, we acknowledge that the Fed will be data-dependent. However, we expect the Fed to resume rate cuts in 2026 as a result of the net negative impact on growth that we believe will stem from the new administration’s unorthodox economic programs,” argues David Page, Head of Macro Research at AXA IM.
It is clear that a more aggressive Fed impacts the outlook of international asset managers, but it is not the only thing that has changed as the year has begun. According to Fidelity International, there has been a widespread improvement in earnings revisions across most regions. However, in their view, two aspects remain unchanged compared to this year: “We expect U.S. exceptionalism to continue for now, driven by upcoming tax cuts and deregulation policies, which is why we maintain our preference for U.S. equities. At the same time, we still see a high political risk. Trade war risks have increased, while the likelihood of a peace agreement between Russia and Ukraine has grown,” they state.
For Jared Franz, an economist at Capital Group, the U.S. economy is experiencing the same phenomenon depicted in the movie The Curious Case of Benjamin Button (2008). “The U.S. economy is evolving similarly. Instead of advancing through the typical four-stage economic cycle that has characterized the post-World War II era, the economy seems to be moving from the final stage of the cycle to the mid-cycle, thereby avoiding a recession. Looking ahead, I believe the United States is heading toward a multi-year period of expansion and could avoid a recession until 2028,” he says.
Historically, and according to Capital Group’s analysis of economic cycles and returns since 1973, the mid-cycle phase has provided a favorable context for U.S. equities, with an average annual return of 14%.
Implications for Investors
According to Jack Janasiewicz, Chief Strategist and Portfolio Manager at Natixis Investment Managers Solutions, his outlook for the year can be summarized as U.S. stocks rising and bonds falling in 2025. “As we enter the new year, the labor market seems to be in recovery mode, as inflation continues to decline, contributing to higher real wages. This translates into greater purchasing power for U.S. consumers. Since consumption drives most of the growth in the U.S., this is a very healthy scenario. Looking ahead to 2025, our outlook remains positive, with expectations of even slower inflation and an expanding labor market. Investment strategies are likely to favor U.S. equities with a balanced investment approach and the use of Treasury bonds to mitigate risk. We foresee that new investments in artificial intelligence will continue to drive productivity and economic growth. The stock market is expected to maintain its upward trend, while the bond market will earn its coupon,” highlights Janasiewicz.
Fixed Income: Focus on Treasuries
One of the most notable movements in these early weeks of January is that the yield on U.S. Treasuries is approaching 5%. According to Danny Zaid, manager at TwentyFour Asset Management (a Vontobel boutique), last Friday’s U.S. unemployment data provides a strong argument for the Fed to remain patient regarding the possibility of further rate cuts. “This has caused a significant increase in U.S. Treasury yields in recent weeks, as the market is lowering expectations for additional cuts. Moreover, rates have also been pushed higher due to market uncertainty about the extent of the new Trump administration’s policy implementation, particularly concerning tariffs and immigration, which could have an inflationary impact,” notes Zaid.
Analysts at Portocolom add that another notable development was that, for the first time in over a year, the 30-year bond exceeded a 5% yield. “European debt experienced virtually identical behavior, with both the Bund and the 10-year bond gaining 15 basis points, closing at 2.57% and 3.26%, respectively,” they point out.
Among the outlooks from the manager at TwentyFour AM, he considers it likely that 10-year U.S. Treasuries will reach 5%. “However, if we take a medium-term view, yield levels are likely to become attractive at these levels. But we believe that for there to be a significant rally in U.S. Treasuries, at least in the short term, we would need to see data pointing to economic weakness or further deterioration in the labor market, and currently, neither condition is present. The rate movements, while significant, are largely justified given the current economic context,” he argues.
The increase in sovereign bond yields has also been observed in the United Kingdom. Specifically, last week saw the largest rise in bond yields, with 10-year Gilts reaching an intraday high of 4.9%, a level not seen since 2008. “Although specific U.K. factors, such as the budget, contributed to the rise, most of the increase was due to the rise in U.S. Treasury yields during the same period. Both weaker growth and higher interest rates put pressure on public finances. Unlike most other major developed countries, the U.K. borrows money at a much higher interest rate than its underlying economic growth rate, worsening its debt dynamics. If current trends of rising yields and slowing growth persist, the likelihood of spending cuts or tax hikes will increase for the government to meet its new fiscal rules,” explains Peder Beck-Friis, an economist at PIMCO.
Equities
As for equities, the year began with the stock market facing a correction that, according to experts, is far from alarming and seems like a logical adjustment after a strong 2024 in terms of earnings. “This data has dispelled fears of an imminent recession but has also ruled out the possibility of rate cuts by the Federal Reserve in the short term, a factor that has pressured major indices like the S&P 500 and Nasdaq, which have fallen around 1.5%. This correction seems to reflect a normal adjustment in valuations rather than a deterioration in economic fundamentals. Credit spreads become a key indicator for interpreting this environment, as long as they remain stable, the market is simply adjusting after a period of rapid gains. Only if we see a widening of these spreads could it signal the first sign of growing concerns about economic growth,” says Javier Molina, Senior Market Analyst at eToro.
In this context, Molina acknowledges that the upcoming earnings season, starting this week, is generating high expectations. “An 8% year-over-year growth in S&P 500 earnings is anticipated, one of the highest levels since 2021. Sectors such as technology and communication services are leading the forecasts, with expected growth of 18% and 19%, respectively. In contrast, the energy sector faces a sharp contraction in earnings, reflecting the challenges of this environment,” he says.
According to the investment team at Portocolom, their assessment of the first weeks is very clear: “The first week of the year in equity markets was characterized by the opposite movement between Europe and the U.S. While U.S. indices fell 2% (the S&P 500 closed at 5,827.04 points and the Nasdaq 100 at 20,847.58 points), in Europe we saw gains exceeding 2% for the Euro Stoxx 50 and 0.60% for the Ibex 35, which ended the week at 4,977.26 and 11,720.90 points, respectively. The performance of a key benchmark, the VIX, was also noteworthy, as the volatility index rose by more than 8% during the week, adding tension to the markets, particularly in the U.S.”
For the Chief Strategist and Portfolio Manager at Natixis Investment Managers Solutions, earnings growth and multiple expansion were the biggest drivers of U.S. equity market returns during 2024. Looking ahead to 2025, Janasiewicz points out: “While some may argue that valuations are at exaggerated levels, we believe these valuations may be justified by the fact that U.S. corporate margins are at historic highs, and investors are willing to pay more for higher-quality companies with stronger margins. Moreover, risk appetite does not appear to be very high, as many investors seem content to remain in money market funds earning 5%, hesitant to jump into equities, which would push prices even higher.”
