State Street Global Advisors, the asset management business of State Street, launched its 2025 Global Market Outlook: Finding the Right Path, outlining its macroeconomic outlook and key investment themes for the year ahead.

Against the background of a resilient economic environment and major central banks embarking on an easing cycle in 2024, equity markets delivered strong returns, while fixed income markets saw modest returns. Looking ahead, State Street Global Advisors expects rate cuts and macroeconomic resilience to continue in 2025, and its long-standing forecast of a U.S. soft landing to materialize.

“2024 was no ordinary year, with elections around the world, persistent inflation and market volatility all playing their part in building an uncertain macroeconomic environment. Despite these challenges, markets continued to be resilient. As we enter 2025, we remain cautiously optimistic, with expectations of a soft-landing in the U.S. looking set to translate into reality,” Lori Heinel, global chief investment officer of State Street, said. “While there are a range of uncertainties to contend with, investors may want to consider above target allocations to equities and should remain thoughtful about portfolio construction.”

State Street Global Advisors believes that the rate cut cycle that started in 2024 will continue for a while longer, although the Trump-led Republican U.S. election victory could result in a change to the narrative in the latter part of 2025. Global geopolitical forces could also play their part in rupturing long-standing economic and financial ties.

State Street Global Advisors retains its favorable outlook for fixed income in 2025. It anticipates that slowing economic output and tame inflation will allow central banks to cut policy rates further, even though the pace and scale may be more uncertain with a Trump administration. This uncertainty may offer investors tactical opportunities to build or expand their duration positioning through the easing cycle.

“While spreads across both investment grade credit and high yield debt are near historic lows, we are optimistic about prospects for fixed income assets next year, and see a generally favorable environment for advanced economy sovereign debt,” Jennifer Bender, global chief investment strategist of State Street, said. “Market sentiment swings and volatility could potentially create opportunities for investors to manage or extend duration.”

Within global equity markets, the resilient economic backdrop provides support for earnings, particularly in the United States. Outside the U.S., the picture is more nuanced but there are pockets of opportunities across markets. Investors will also need to navigate both short-term uncertainties as well as deeper structural shifts such as demographic changes, geoeconomic fragmentation and the rise of transformative technologies.

“We expect Japanese equities to move sideways due to potential volatility, while Chinese equities may struggle in sustaining higher growth and strong performance despite the short-term relief from the country’s stimulus program,” Bender said. “At the same time, we believe U.S. large cap equity will maintain its structural advantage to the rest of developed markets and see the outlook for emerging markets as more nuanced as investors balance economic and earnings growth, and easing inflationary pressures versus geopolitical risk and a strong U.S. dollar.”

Aside from the outlook for different asset classes, the firm also highlights important considerations in portfolio construction, the emergence of the Gulf Cooperation Council (GCC) region as an investment location worth greater consideration, and the disruptive power of transformative technologies such as generative AI and tokenization.

“The GCC region is undergoing significant transformation driven by its Vision plans, which increases its appeal for both domestic and international investors and is reflected in the performance of the equity and bond markets,” Heinel said. “From the inclusion of GCC countries in global indices, to the region’s substantial fixed income issuance, the GCC region offers significant growth potential for investors seeking to build a forward-looking portfolio. In addition, we believe investors should look beyond the traditional balanced (“60/40”) portfolio and evaluate alternative exposures from a diversification, risk mitigation and alpha generation perspective. Allocations to real assets, commodities, infrastructure, digital assets and private assets could potentially offer higher returns, lower volatility and enhanced diversification.”