Private investment firm Turning Rock Partners is preparing for a turbulent 2025, citing elevated interest rates, trade tensions, and consumer credit strain as key drivers of financial market volatility, according to its Q4/2024 market update report.

The report highlights that U.S. Federal Reserve policy has kept interest rates high, and ongoing tariff battles and global conflicts are compounding uncertainty in equity markets. Turning Rock notes that as markets digest shifting trade policy regimes, risk premia are widening and volatility is accelerating. Tariffs are expected to have their most significant impact in 2025, particularly on imports and consumer spending, placing additional strain on already fragile supply chains.

“Supply chain stability is once again tenuous,” a Turning Rock representative said, emphasizing that global businesses are reassessing sourcing and inventory strategies as a result of rising trade costs and geopolitical instability.

On the consumer side, the commentary underscores growing pressure on U.S. households. Credit card balances have hit their highest levels since 2012, with revolving balances climbing steadily from 65% in late 2021 to 71% by the end of 2024. Consumers are borrowing more and paying off less, while high interest rates have led to a 12-year low in mortgage originations, the firm reports, according to the report.

Amid these challenges, the commercial banking sector is showing signs of resilience. According to Turning Rock, banks are continuing to lend actively, supported by a pro-business policy environment and anticipated deregulation. The firm projects 5% year-over-year loan growth in 2025.

Positioning its portfolio for the year ahead, Turning Rock is leaning into defensive sectors like transportation, communications, essential services, and industrials. The firm is “heavily downside stressing earnings and outlooks” in anticipation of a more costly operating environment driven by greater supply chain, compliance, and execution risks.

As markets continue to grapple with policy uncertainty and global disruptions, Turning Rock’s cautious and diversified approach reflects its expectation that 2025 will be a test of resilience.