Economic and Market Outlooks for the Year Ahead

As retirement investment planners look to 2025, a collective pivot by central banks toward easing monetary policy will be a defining theme shaping markets, according to analysts and strategists from leading financial institutions that serve defined contribution investing.

This lower-rate environment will, at times, fuel other trends that will further shape the economic and investment landscape, including increased use of transformative technologies in infrastructure investment. But, perhaps more than usual, geopolitical shifts may upend even the best forecasting.

Below are some of the key market factors to watch heading into 2025.

Easing Monetary Policies

In their annual outlooks, J.P. Morgan Asset Management, Invesco and T. Rowe Price underscored the significance of synchronized rate cuts by central banks worldwide—what they described as a coordinated action following a period of aggressive rate hikes aimed at controlling inflation.

J.P. Morgan predicted these measures will benefit fixed-income markets and commercial real estate, but cautioned they may fall short of fully revitalizing growth.

Invesco’s outlook envisioned a “soft landing” for the global economy, with initial deceleration giving way to reacceleration in the latter half of 2025. It also projected growth in the U.S. to be soft before rebounding, supported by easing financial conditions and a resilient labor market. Meanwhile, regions such as the eurozone and the U.K. are likely to recover from sluggish growth or recession, aided by moderate real wage growth.

T Rowe Price added that relaxed financial conditions have already boosted consumer wealth and balance sheets, fostering optimism in the markets. However, slower job creation may temper gains, even as productivity improvements and robust real disposable incomes provide a tailwind for growth.

Investment Strategies: Diversification and Resilience

Equities and fixed-income assets offer mixed opportunities as investors navigate the post-pandemic recovery, according to Columbia Threadneedle.

The firm projected selective gains in U.S. equities, tempered by the expectation that 20% to 25% annual growth rates are unlikely to continue. The asset manager also emphasized that while lower rates and strong earnings create a favorable backdrop, geopolitical uncertainties and labor market changes could challenge sustained growth. The firm advised investors to focus on companies with solid fundamentals and those exploring opportunities beyond U.S. markets, particularly in Europe, where valuations are attractive.

Fixed-income markets, meanwhile, are positioned for a strong performance in 2025. Attractive yields, coupled with central bank rate cuts, create opportunities for healthy returns, according to Columbia Threadneedle analysts. Bonds are regaining their role as portfolio stabilizers, offering protection against market shocks.

Housing and construction remain areas of interest, with J.P. Morgan noting persistent demand for homebuilding despite affordability challenges.

Goldman Sachs added that infrastructure investment is evolving in response to demographic and technological shifts. Aging populations are reshaping public spending priorities, increasing demand for private funding in sectors such as health care and retirement infrastructure.

J.P. Morgan recommended portfolios that blend fixed-income assets, real estate and dividend-paying equities to balance income generation with growth potential. Similarly, Columbia Threadneedle highlighted the value of selective stock and credit selection to navigate risks while capitalizing on opportunities.

Technology and Productivity

Asset managers see artificial intelligence driving changes across industries in 2025, particularly in the U.S., where J.P. Morgan predicted AI will transform health care, pharmaceuticals and white-collar work.

Globally, automation and infrastructure electrification are expected to yield significant productivity gains, further enhancing economic resilience, according to the firm.

Goldman Sachs also highlighted the expanding role of AI in infrastructure, including data center development and transport electrification. These advancements align with thematic trends, such as sustainable energy investments and evolving supply chains driven by trade fragmentation.

Recent surveying has also shown that financial advisers may be utilizing AI more in their practices in the coming year. According to BlackRock Inc. surveying released in September, 53% of advisers are planning to implement AI, a jump from 44% the prior year.

Infrastructure Investment

Goldman Sachs’ 2025 outlook emphasized the evolution of infrastructure investment amid moderating inflation and shifting market dynamics.

The report also identified a bifurcation in infrastructure investment structures. Evergreen models cater to large, yield-focused core assets, while drawdown funds are better suited to opportunistic investments requiring disciplined exits.

Thematic opportunities include sustainable energy, AI-driven expansion and aging populations, which are reshaping public budget priorities and increasing reliance on private infrastructure funding, according to the firm.

Geopolitical Uncertainty

Political risk and rising government debt remain significant challenges for 2025. J.P. Morgan cautions that these factors could spur market volatility, urging investors to balance growth strategies with robust risk management. Globally, regional variations add complexity to economic outlooks, according to Invesco.

The investment manager pointed to Japan as a standout performer, buoyed by recent wage growth and favorable policy adjustments. Conversely, China’s policy stimulus may provide only limited reflationary impact on its regional neighbors, even as it supports domestic growth. Emerging markets, particularly India, show promise due to domestic demand and advantageous demographic trends. Meanwhile, escalating conflicts in Eastern Europe and the Middle East, while primarily a humanitarian crisis, also threaten to disrupt trade routes and drive volatility in commodity prices.

In the U.S., markets are grappling with the uncertainty surrounding President-elect Donald Trump’s legislative agenda, which remains undefined but carries significant policy and portfolio implications, according to Goldman Sachs. Potentially pro-growth measures such as looser fiscal policies, lower corporate taxes and lighter regulation could boost economic momentum.

However, Goldman Sachs stated the possibility of trade protectionism poses risks, including slower growth and short-term inflation spikes. Economic data fluctuations may trigger growth-driven sell-offs, as seen in August’s market volatility.