- We’re bullish on bonds – although investors should manage their expectations on rate cuts.
- President Elect Donald Trump could be positive for US smaller companies.
- Both infrastructure and renewable energy offer investors potential for income and growth.
- Gold will hold its value.
Emma Wall, head of platform investments, Hargreaves Lansdown:
“Expect volatility to reign in 2025 and for equities and bonds to be jumpy over the next 12 months. Nothing new there, markets and yields have bounced about in 2024, sensitive to macroeconomic and political shocks. But, while it can be difficult to manage the emotional rollercoaster of a volatile investment market, it also creates opportunities for nimble investors. Heading into the new year, there are three investments we see as the most compelling. However, as always with investing, these should be part of a portfolio that is well diversified across regions and asset classes.
Bonds
We’re bullish on bonds – although investors should manage their expectations on rate cuts. This is a higher for longer era. Both the Federal Reserve central bank in the US and the Bank of England in the UK have warned that cuts will be slow to come and cautiously applied. Inflation is after all not conquered yet, and a number of incoming US President Donald Trump’s policies are likely to be inflationary too.
But with the 10-year Gilt and US Treasury yields both still above 4%, bonds are still as attractive to us as they were earlier in 2024. Taking a long-term view, yields could fall to below 4% in future. By looking at bonds now, there is potential for capital gains in the future, as well as being rewarded with inflation-beating income in the near term, and the potential to diversify portfolios.
US smaller companies
The 47th President of the United States’ impact on the US stock market could be positive for smaller companies. On the campaign trail, Trump mooted a blanket 20% tariff on all imports into the US. Trade tariffs favour domestic businesses over international conglomerates, and smaller companies are usually more domestically focused, although investing in them carries more risk.
Trump has also proposed cuts to cut corporate taxes, which is positive for companies’ earnings – and therefore could be beneficial to stock prices.
Infrastructure and renewables
While inflation and interest rates have proved headwinds for infrastructure, the macro-environment is – slowly – changing. Falling inflation and interest rate cuts historically have been good for the sector. Add to that significant investment promised in the UK Budget in October and the outlook is brighter than it has been in some time. Both infrastructure and renewable energy offer investors potential for income and growth and can add good diversification to a portfolio that already owns stocks and bonds.
Finally, a quick word on gold. While we don’t think it makes great gains this year, we do think it will hold its value and provide a useful diversifier in the face of both inflation and – sadly likely – continued geopolitical shocks.”
