Ashwin Alankar: At times like today, amid a confluence of economic, political, and social unknowns, data are especially important to bring clarity to a system that otherwise appears quite chaotic. Across many different datasets that we have analyzed, from future risks priced by options and derivative markets globally to historical periods similar to today identified by pattern recognition algorithms, we are optimistic about capital markets heading into the new year. We expect the downside risk to capital markets and recession risk to be muted, enabling investors to source equity risk premiums and fixed income risk premiums in relative safety.

But, to no surprise, potential policy changes under a second administration by Trump will be a significant factor determining capital market performance. Because today’s starting point and today’s starting conditions are very different from the starting conditions when Mr. Trump was first elected president in 2016, we absolutely cannot expect capital markets to behave exactly the same way they did back in 2017. This would make investing way too easy.

So let’s take a look at where assets are likely to perform similarly to Mr. Trump’s first year as president and where performance could diverge this time around, starting off with global equities. We all know global equities performed exceptionally well when Mr. Trump was first elected president back in 2016. Ironically, despite tariffs, despite other protectionist policies, non-US equities in fact outperformed US equities.

But, unlike today, back then, non-US countries were showing clear signs of strong economic rebound. So, while we expect equities in general to perform well in the medium term, coming into the new year, we expect US equities to lead the pack and to be a more attractive place to source equity risk premium. Another point of departure is, we also do expect lower-volatility, higher-stability stocks to shine as we are much later in the business cycle today than we were back in 2016.

Now on to fixed income. Interest rate volatility was very high during Mr. Trump’s first year as president and we expect the same to unfold in 2025. Moreover and more importantly, we also expect there to be greater upward pressure to interest rates today than previously because Mr. Trump’s pro-growth policies represent a much greater and significant threat to inflation this time around.

It is much easier to ignite inflation when the memory of rising prices is still fresh in consumer’s minds, just like it is today. We believe the risk to higher rates is more severe here in the US than outside of the US, given lackluster growth we expect in other regions.

Lastly, on currencies, unlike 2017, where the US dollar rally lost steam, we expect dollar strength to continue throughout most of 2025 as economic growth outside of the US is not the bright spot that it was back in 2017. Furthermore, the US administration’s pro-growth policies will likely delay interest rate cuts and accommodation by the Federal Reserve, lending further support to a strong US dollar.

So, while history is repeating with Donald Trump back in the White House, you likely will not see an exact repeat of capital market performance. Understanding the points of similarity and understanding the points of departure should prove to be quite valuable as investors navigate where best to invest in 2025.