Inflation
In 2024, we finally saw inflation under control and interest rates month way down, as forecast.
“The genie’s back in the bottle,” Taylor said. “It’s back in the band for most places at 2-3%. That’s where they want it.”
Perhaps another half a percentage point lower would be an improvement, but it was probably better where it was than sitting at 1% like it was in the latter part of the last decade, he said.
“I think central banks have largely achieved what they set out to do.”
One more pick for 2024 was the speed of new trends in the market would accelerate.
“That’s pretty much happened,” Taylor said.
“I think one of the drivers behind that has been AI and the impact AI has had on markets in various different sectors. So things are moving a lot [more quickly] than they have done in the past.”
What to expect in 2025
US President-elect Donald Trump adds some unpredictability to forecasting markets in 2025.
“There will be a lot of statements that come out of the well from Trump and it won’t be immediately clear whether those things are going to be enacted, whether it’s a throwaway comment, whether it’s a threatening comment,” Taylor said.
“So we can’t live by every word that comes out of his X account. We need to be focused more on what actually is enacted in terms of policy.”
But we could expect to see quite a few things signed off quickly post-inauguration (on January 20).
“New tariffs will be the main one,” Taylor said.
Markets
Broadly, though, there was a lot of bullishness about Trump policies bolstering the US economy.
“So the base case is for global equity markets to go higher, led again by the US, with very favourable market policy, regulation etc to come through next year.”
“I think the S&P 500 can definitely put on 15%, possibly even 20% next year, backing up this year, which would take it through 7000.”
But that would make it quite expensive, he warned, with an earnings multiple of well over 25 times – compared to other markets such as Europe, which are almost half that.
“There is definitely a possibility for this market to develop into a bit of a mania,” Taylor said.
We could see that with Bitcoin, where Trump’s victory had fueled a lot of support in the US.
“People like me around the world are including that in their asset allocations. So Bitcoin – call it around US$100,000 at the moment – I wouldn’t be surprised to see it trade as high as US$200,000 next year, just based on the sheer volume of support that it’s getting in the US.”
“If that’s the case, we could be into full-on bubble territory throughout the rest of the equity market. If that happens, of course you will be hearing from us to be cautious, no doubt.”
But Taylor sees some hope big geopolitical risks could ease next year.
“We’ve had the wars in the Middle East and in Russia, Ukraine. I’ll be expecting we could have peace in the Middle East and also some sort of peace in Ukraine,” he said.
“If they could achieve that, that would flow through, you think, to some continued bullish sentiment on Wall Street; remove one of the uncertainties that’s been hanging over the market for the last two years.”
“I know the Trump administration has been talking about [that]. So that would definitely be a positive for markets, and obviously the people in those regions.”
The Market Watch video show is produced in partnership with Pie Funds.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
