Investment Strategy
Navigating the New Year: 3 resolutions for investors
Here is the good news: Equity markets managed to post a small gain over the first five trading days of 2025. Since 1950, the average full-year return when the index rose over the first five days was nearly 15%, and the market finished higher 85% of the time.
Here is the bad news: Bond markets have had a rougher start. So far this year, 10-year Treasury yields are up over 20 basis points (bps), and the yield curve has reached the steepest level since May 2022. True, some of the moves can be explained by an economy that is still growing at a solid clip, but investors are starting to fret about the expansion of the government budget deficit if the Tax Cuts and Jobs Act is extended, and the potentially inflationary impacts of tariffs and stricter immigration policy. After this morning’s jobs data, which showed strong job gains and a decrease in the unemployment rate, markets aren’t expecting the Federal Reserve to make another move until October.
The yield curve has reached its steepest level since May 2022
U.S. Treasury 2Y-10Y yield spread, bps
Source: Bloomberg Finance L.P. Data as of January 9, 2024.
It seems clear that 2025 will present both challenges and opportunities for investors. In this note, we have synthesized our insights into three actionable New Year’s resolutions to guide your investment journey. We hope these resolutions help you position your portfolio for the year ahead.
2025 Investment Resolutions
Resolution 1: Embrace creative diversification
Diversification remains a fundamental principle, but in 2025, we believe investors need to think beyond just stocks and bonds to build resilient portfolios. While we believe the Fed is on a trajectory to bring policy rates back toward a neutral stance (the labor market is still gradually loosening, and interest-rate-sensitive sectors continue to underperform the broader economy), there is still tremendous uncertainty over where the “neutral rate” (where the Fed is headed) truly lies. The Fed’s own monetary policymakers’ best estimates range all the way from 2.5% to 4.0%. Such uncertainty will likely keep volatility in fixed income markets elevated.
Given this economic backdrop, we believe it is crucial to consider diversifying sources of income and hedging against inflation. Infrastructure, real estate and structured financial instruments offer the potential for differentiated income streams with lower correlation to both equities and fixed income. For those concerned about fiscal deficits, precious metals (such as gold) remain a viable hedge.
Stock-bond correlation tends to be positive when interest rate volatility is high
Stock bond correlation (3yr. Trailing) MOVE Index (6m. Avg)
Source: Bloomberg Finance L.P. Data as of January 03, 2025. Note: Correlation based on the weekly total return for the indices for the past 3 years. Bonds uses the LUATTRUU Index and Equities uses the S&P500 Index.
Resolution 2: Maintain a constructive view on equities
Despite elevated valuations, we remain constructive on equities. We believe U.S. large-cap companies can grow their earnings by 12%–15%, which should help to offset a compression in valuations. Further, historical data shows that after two consecutive years of +20% returns (as we saw in 2023 and 2024), the S&P 500 tends to perform well in the subsequent year.
That said, we wouldn’t rule out market pullbacks and volatility. In the last 40 years, the S&P 500 average intra-year drawdown was -14%. Even with those pullbacks, the index finished higher in 31 of those 40 years. Investors who are building equity portfolios could potentially take advantage of those dips. Within the market, we favor a focus on themes such as AI, power infrastructure and global security, and our preferred sectors (utilities, technology, industrials and financials).
Despite intra-year swings, equities tend to reward investors over time
S&P 500 intra-year declines (max drawdowns) & calendar year price returns
Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management - Guide to the Markets. Returns are based on price index only and do not include dividends. Intra-year drawdowns refer to the largest market declines from a peak to a trough during the year. Return shown are calendar year returns from 1980 to present year. Data as of December 31, 2024.
The anticipated buildout of industrial capacity in the United States, driven by expected tariff increases and industrial subsidies, presents a durable tailwind for critical industries such as AI and battery technology. Additionally, deregulation is expected to spur capital markets activity, benefiting sectors that have not yet experienced the same level of growth as others.
Tariffs today make up less than 2% of federal receipts
Tariff revenue as a share of total federal receipts, %
Source: WhiteHouse; Census; CEA calculations. Note data prior to 1940 does not match current fiscal year convention. Data as of June 20, 2024.
By emphasizing these areas, investors can potentially capture opportunities that align with long-term growth trends while maintaining a diversified approach.
Resolution 3: Prioritize U.S. Risk Assets
Outside the U.S., economies are not experiencing the same robust economic growth. We think this positions U.S. risk assets for potential outperformance.
Meanwhile, we continue to expect the U.S. dollar to remain stronger for longer, and we see no immediate concerns regarding its stability.
Conclusion: Build on strength
As we navigate 2025, our goal is to connect our analysis and insights with actionable strategies that help you achieve your goals. The resolutions may help you build a more resilient portfolio. By embracing creative diversification, maintaining a constructive view on equities and prioritizing U.S. risk assets, we believe you can position your portfolio for success in the year ahead.
We encourage you to reach out to your J.P. Morgan team for personalized guidance and to explore how these strategies can be tailored to your unique financial goals.
All market and economic data as of January 2025 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.
We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.
Diversification: Asset allocation/diversification does not guarantee a profit or protect against loss.
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- Past performance is not indicative of future results. You may not invest directly in an index.
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Here’s what to keep in mind when refining your portfolio in 2025.
Samuel Zief
Global Macro Strategist & Head of Global FX Strategy
Published Jan 10, 2025
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