NEW YORK, NY – iCapital1, the global fintech platform driving the world’s alternative investment marketplace for the wealth and asset management industries, today released its annual market outlook, mapping out the key trends that will impact the U.S. markets and economy in 2025 and providing tactical guidance for investors.
iCapital’s comprehensive analysis highlights a robust economic foundation for the U.S. economy in 2025, while also acknowledging a number of uncertainties that could influence the investment implications – helping clients navigate the market conditions ahead.
“There are a number of important factors, including rate relief, likely deregulation, capital markets activity and productivity growth, that provide a foundation for positive market performance next year,” said Anastasia Amoroso, Chief Investment Strategist at iCapital. “However, we’ll need to keep an eye on a number of wildcards that could impact the economic and market outcome for investors in 2025. Overall, we think investors will be well served by staying invested and maintaining a strategic asset allocation, including alternatives, while remaining nimble in public market opportunities.”
Factors Contributing to a Positive Outlook
The U.S. economy is expected to grow at its trend rate of around 2% in 20252. Consumer spending will continue to be a key driver, supported by growth in real disposable income and rising household wealth. Inflation is projected to trend towards the Federal Reserve’s target, with core personal consumption expenditures (PCE) expected to fall to 2.2%3. Other factors contributing to a positive outlook include:
- Rate relief: The Federal Reserve may cut rates by another 75-100 basis points by the end of 2025, bringing front-end rates down to approximately 3.75%4. The 10-year yield is expected to trade between 3.8% – 5%, providing a slight tailwind to growth5.
- Deregulation: Potential financial and energy deregulation are anticipated to lift economic growth. Financial deregulation will ease credit constraints, while increased oil production could lower prices and support consumer spending.
- Capital markets activity: M&A transactions are expected to rise by 25%, with 750 anticipated transactions6 IPO activity is also projected to increase, reversing recent declines and returning to pre-pandemic levels.
- Continued productivity growth: Productivity growth is expected to continue at an annualized pace of 1.8%, above the post-global financial crisis rate of 1.5%7.
Notable Uncertainties
Despite the solid underpinnings for the U.S. economy and supportive policy proposals out of certain international economies, several uncertainties could impact the economic and market outcome for investors in 2025.
- Tariffs: Potential tariffs could be implemented faster and more widespread than in, President-elect, Trump’s first administration. Tariffs may also be used to extract other concessions besides the desired leveling of the playing field.
- Taxes: The timing and impact of various tax policy changes remain uncertain.
- Budget Deficit: The anticipated extension of the TCJA could widen the deficit, putting upward pressure on bond yields, which could weigh on the equity markets.
- Fed Policy: If growth remains strong and inflation sticky, there is the potential that the Fed could pause their tightening cycle in 2025, which would pause or reverse the rate relief expected in 2025.
Top Investment Ideas for 2025
- Value-add real estate: As capitalization rates retreat, real estate returns will need to be enhanced by reinvestment in property portfolios. iCapital expects value-add real estate to be a strong relative performer.
- Venture capital: As IPO markets become more conducive to deal activity, venture capital strategies, particularly those holding older vintages, should be able to monetize assets earlier and generate greater realization in portfolios.
- Middle market buyout: With a reduction in dry powder through the end of 2024 and a backdrop of easing interest rates, iCapital anticipates an increase in deal activity and exits, ultimately returning capital to investors.
- Asset-backed lending: Greater regulation and the regional banking crisis in 2023 have materially decreased the available capital from traditional lenders in the asset backed lending space, creating an opportunity for non-bank lenders and private credit to fill the void.
- Event-driven hedge funds: Changes in leadership at the Federal Trade Commission, potential corporate tax reductions, rising deal activity, and an increase in merger arbitrage all provide a favorable backdrop for event-driven strategies.
- Structured investments: The asset class should offer investors an opportunity to take advantage of the volatility and asset dispersion iCapital expects in 2025. If the wildcards and various policies lead to a divergence in asset performance, investors can position for these outcomes using various underlying sector ETFs, custom baskets, and indices.
About iCapital
iCapital powers the world’s alternative investment marketplace, offering a complete suite of tools, end-to-end enterprise solutions, data management and distribution capabilities, and an innovative operating system. iCapital is the trusted technology partner to financial advisors, wealth managers, asset managers, as well as other participants in this ecosystem, and offers unrivaled access, technology, and education to incorporate alternative assets, structured investments, and annuities into the core portfolio strategies for their clients.
At the forefront of the digital transformation in alternative investing, iCapital’s secure platform delivers a complete portfolio of management capabilities for education, transactions, data flows, analytics, and client support throughout the investment lifecycle. With $206 billion+8 in global platform assets2, the iCapital operating system automates and streamlines the complex process of private market investing, and seamlessly integrates with clients’ existing infrastructure platform and tools.
iCapital employs more than 1,675 people globally and has 17 offices worldwide, including New York, Greenwich, Zurich, Lisbon, London, Hong Kong, Singapore, Tokyo, and Toronto. iCapital has consistently been recognized for its outstanding innovation, fintech industry leadership, and performance, including CNBC World Top Fintech Companies for 2024, and Forbes Fintech 50 for seven consecutive years since 2018.
For more information, visit https://icapital.com | X (Twitter): @icapitalnetwork | LinkedIn: https://www.linkedin.com/company/icapital-network-inc/
For media inquiries, please contact:
iCapital Media Team
+1 919 602 2806
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1. iCapital, Inc. and its affiliates (together, “iCapital”)
2. Bloomberg, as of Dec. 9, 2024.
3. Bloomberg, as of Dec. 9, 2024.
4. Federal Reserve, as of Sep. 18, 2024.
5. Bloomberg, iCapital Investment Strategy, as of Dec. 9, 2024.
6. Goldman Sachs, as of Nov. 18, 2024.
7. Bureau of Labor Statistics, iCapital Investment Strategy, as of Dec. 9, 2024.
8. As of October 31, 2024
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ALTERNATIVE INVESTMENTS ARE CONSIDERED COMPLEX PRODUCTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. Prospective investors should be aware that an investment in an alternative investment is speculative and involves a high degree of risk. Alternative Investments often engage in leveraging and other speculative investment practices that may increase the risk of investment loss; can be highly illiquid; may not be required to provide periodic pricing or valuation information to investors; may involve complex tax structures and delays in distributing important tax information; are not subject to the same regulatory requirements as mutual funds; and often charge high fees. There is no guarantee that an alternative investment will implement its investment strategy and/or achieve its objectives, generate profits, or avoid loss. An investment should only be considered by sophisticated investors who can afford to lose all or a substantial amount of their investment.
iCapital Markets LLC operates a platform that makes available financial products to financial professionals. In operating this platform, iCapital Markets LLC generally earns revenue based on the volume of transactions that take place in these products and would benefit by an increase in sales for these products.
The information contained herein is an opinion only, as of the date indicated, and should not be relied upon as the only important information available. Any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets is not necessarily indicative of the future or likely performance. The information contained herein is subject to change, incomplete, and may include information and/or data obtained from third party sources that iCapital believes, but does not guarantee, to be accurate. iCapital considers this third-party data reliable, but does not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. iCapital makes no representation as to the accuracy or completeness of this material and accepts no liability for losses arising from the use of the material presented. No representation or warranty is made by iCapital as to the reasonableness or completeness of such forward-looking statements or to any other financial information contained herein.
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