Barely a week into 2025, both U.S. and global stocks continue to be colored by uncertainty. Additional uncertainty comes from government policy under the second term of President Donald Trump, as well as financial markets being "priced for perfection,” according to Abby Joseph Cohen, Professor of Business at Columbia Business School and a former investment strategist at Goldman Sachs.
Prior to Trump’s inauguration, Cohen participated alongside GAMCO Investors CEO Mario J. Gabelli ’67 in the 2025 Barron’s Roundtable, a panel of professional investors and market strategists who meet each January to discuss the outlook for the economy. During the discussion, Cohen noted that she expects 2025 to be a “volatile year for the economy and markets in the U.S. and globally.” She also shared three major insights and recommendations for the year ahead:
1. Credit Spreads Are Tight
In looking at fixed-income markets, Cohen noted that credit spreads were “extraordinarily tight.” She drew comparisons between the current credit spreads and the high-yield bonds and global fixed-income markets of the 1990s, which at the time prompted former Federal Reserve Chair Alan Greenspan to give a famous speech about “irrational exuberance.”
On the policy side, Cohen warned that Trump’s proposed trade tariffs could be inflationary and harm economic growth, particularly in trade-dependent regions like Europe, Canada, and Mexico. She also expressed concerns with Trump’s reinstatement of Schedule F, which allows his administration to “reclassify tens of thousands of high-level civil servants as political appointees, meaning they could be easily fired and replaced by others without the subject-matter expertise,” Cohen said.
Coupled with a slew of regulatory rollbacks, these changes could spell disruption for markets, especially when it comes to mergers and acquisitions, according to Cohen. More market disruptions could come from changes to U.S. immigration policy, as legal immigration is critical to sustaining workforce growth and innovation. Additionally, immigrants make up a significant portion of the U.S. workforce in science and medicine, including 60% of all working PhDs in these categories.
2. Bipartisan Bills Require Funding
A lot of economic uncertainty in the U.S. comes from not yet knowing how the Trump administration will treat the bipartisan economic bills passed during the Biden administration, such as the Inflation Reduction Act (IRA), Infrastructure Investment and Jobs Act (IIJA), which provided funding for infrastructure, and the CHIPS and Science Act, which set aside funding for the domestic production of semiconductor chips and scientific research. .
In order to reap both the intermediate and long-term economic benefits of these bills, consistent funding is needed, according to Cohen. However, one of Trump’s many executive orders issued during his first week in office ordered federal agencies to pause funding of several Biden-era bills, including the IIJA and the IRA.
“Growth is needed to improve the standard of living and reduce the nation’s debt-to-GDP ratio,” Cohen said, adding later that the three initiatives, “all need funding in the coming years.”
3. Embrace an Anti-Momentum Market
Going forward, Cohen sees U.S. productivity doing better than comparatively stagnant regions like Europe, Canada, and the United Kingdom, thanks to capital spending on hardware and software and a skilled workforce. She pointed to the U.S. as a “magnet” for foreign investment due to the country’s strong end markets, past infrastructure investments, and innovation.
Up until this point, financial markets have been momentum-driven, benefiting from low volatility and low interest rates, Cohen noted. To take full advantage of market opportunities in 2025 and beyond, investors must embrace an “anti-momentum” market, “namely, stocks with good absolute value or attractive relative value, and companies that can operate well with a higher interest-rate environment,” Cohen said.
She added that approximately half of the return on the S&P 500 in recent years is the result of valuation expansion and is linked to low interest rates. However, future returns will likely result from, “earnings growth and pockets of good value.”
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