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1、OUTLOOKLPL RESEARCH PRESENTS2025Pragmatic OptimismContents235913 1418 21232527 29From the CIOOverviewEconomyStock MarketSector RecommendationsBond MarketAlternative InvestmentsGeopoliticsCommoditiesCurrenciesTactical Views SummaryMeet the STAACPlease see page 30 for important disclosures.Outlook 202

2、5|2Looking back on 2024,it clearly echoed many of the themes from 2023.There were some brief economic growth scares along the way,but by and large the broader economy continued to defy expectations and surprised once again to the upside.Stocks continued their strong performance,and the S&P 500 is on

3、 track to record its second consecutive year of 20%plus returns as powerful trends in artificial intelligence(AI)and technology have proceeded unabated and largely overshadowed other factors like election uncertainty,continued geopolitical tension,and some rich stock valuations.After the election,th

4、e anticipation of potentially market-friendly policies from the incoming administration also helped bolster stocks.The bond market,in contrast,experienced another lackluster year.While the Fed initiated a long-awaited easing cycle,policy ambiguity and uneasiness over rising debt levels led to increa

5、sed volatility in bonds,but no clear directional trend.As we look ahead to 2025,we remain cautiously optimistic.Cautious because we know that no market environment is ever permanent,and that change is always potentially around the corner.Optimistic because we recognize constructive long-term technol

6、ogy trends are in place.Plus,potential tax policy and deregulation efforts in 2025 could provide some semblance of a tailwind particularly from an economic perspective.While growth asset returns are not expected to be as robust as 2024,2025s investment environment should prove to be favorable for in

7、vestors.To better ensure optimal outcomes for investors,our Strategic&Tactical Asset Allocation Committee(STAAC)employs a rigorous and systematic approach to investing.Leveraging proprietary quantitative modeling,our team seeks to identify potential risks and opportunities across capital markets.For

8、 2025,new fiscal and regulatory policies will need to be digested,and relatively rich valuations may get tested.This means equity markets probably wont be as one-way as they have been.For the time being,this backdrop favors a constructive,but also a conservative and balanced approach to tactical sto

9、ck and bond allocations.LPL Research is committed to supporting our advisors,our institutions,and their clients throughout every market cycle.We truly value our partnerships and will always strive to deliver the highest level of guidance and support.We remain incredibly grateful for the confidence b

10、estowed upon us and wish you a very prosperous 2025!Sincerely,Marc Zabicki,CFA Chief Investment Officer,LPL FinancialFrom the CIOLPL RESEARCH3|LPL ResearchPositive,but Less of a One-Way StreetIt was another strong and impressive year for stocks.The market was driven higher by unwavering trends in te

11、chnology,an enduring economy with moderating inflation,the delivery of Fed rate cuts,and the prospect of investor-friendly policies from the incoming administration.As we look towards 2025,investors should consider:Varied upside potential:If they persist,a combination of moderating inflation,stable

12、interest rates,and strong earnings growth supports a higher S&P 500 valuation.Our fair value target range for 2025 is 6,275 to 6,375.Potential upside could come from lower rates,productivity gains,and confirmation of market-friendly policies from the new administration.Avoiding recession is key:The

13、stock market has historically delivered single digit returns in the 12 months following an initial rate cut from the Fed,but when recession has been avoided,the median gain has been closer to 11%.Potential risks:While not the base case,a much slower-than-expected economy,coupled with a volatile inte

14、rest rate policy,would be a serious headwind.Additionally,resurgent inflationary pressures in response to new policy or another increase in geopolitical tensions could also further undermine the current positive narrative for stocks.Dont expect a one-way street higher:Even in non-recessionary period

15、s,it is still commonplace for equity bull markets to undergo 10%corrections along the way.Be prepared for bouts of volatility in 2025 and favor buying equities on market pullbacks.We expect equity returns to indeed be favorable in 2025,but the upside will not be as robust as 2024.Steady Progress but

16、 Complexities Remain As we enter 2025,the economic landscape remains complex,marked by both opportunities and potential risks.In the year ahead,investors should be thinking about the following:The economic fog is lifting but hasnt fully dissipated:The economy has experienced significant shifts over

17、the last few years,including aggressive rate hikes followed by a pivot to rate cuts.While inflation has moderated,it remains historically elevated,putting pressure on certain segments of the population while arguably benefiting others.The bifurcated nature of the economy will continue to pose challe

18、nges for monetary policymakers in 2025.Look for the economy to slow but not tip into recession:The economy will likely downshift throughout 2025 as consumer spending,which makes up roughly two-thirds of economic growth metrics,begins to moderate from recent breakneck speeds.Pent-up demand for busine

19、ss capital expenditures,favorable tax policy,and likely deregulation are expected to be positive catalysts that should help offset some consumer softening.Be prepared for inflation hiccups and changing narratives around rates:Some inflationary pressures may re-emerge in 2025 as new policies are dige

20、sted and wealthier consumers remain fairly insulated;overall inflation is expected to remain subdued.Nevertheless,upticks in inflation could lead to changing narratives and a slower pace of Federal Reserve(Fed)rate cuts than expected that force markets to adjust to yields staying higher for longer.R

21、emember that so goes employment,so will go the economy:The labor market continues to show signs that it is slowly shifting.Workers are becoming less inclined to switch jobs and the average workweek for private payrolls has declined,which is indicative of a weakening demand for labor.We expect the un

22、employment rate will continue to move up in the coming quarters,but only at a moderate pace.Anything more than gradual would be a clear sign that our base case is wrong,and the economy is entering a more pronounced slowdown.OVERVIEWE C O N O M YS TO C K M A R K E TOutlook 2025|4 On the economy:The e

23、conomy is expected to cool in 2025 due to moderating consumer spending,a softer labor market,and nagging inflationary pressures.Pent-up demand for capital expenditures and potentially business-friendly tax policy could help offset any weakness,while an unexpectedly sharp rise in unemployment would s

24、ignal a more significant economic slowdown is underway.On Fed policy:The complexities of a bifurcated economy and the unknown impacts of new government policies will make things challenging for the Fed to deliver on its dual mandate.Inflation levels above target,and prone to an uptick,suggest to us

25、that the Fed will not likely cut as much as investors originally hoped.However,the Feds strong desire to engineer a soft landing keeps the door open to lower rates in 2025.On bonds:With risks roughly balanced for bonds over the next year,stay focused on income generation and look to take advantage o

26、f the favorable interest rate environment to secure historically attractive yields in portfolios.Avoid large exposure to longer-term maturities that are more interest rate sensitive and instead concentrate on intermediate-term maturities,which better balance risks but still offer attractive income p

27、otential.On stocks:If it can persist,the current backdrop of moderating inflation,stable interest rates,and robust earnings growth,sets the stage for a higher S&P 500 in 2025.However,the market has come a long way in a short amount of time.Exercise patience and selectivity with equity allocations an

28、d look to capitalize on market corrections.On cash:With cash rates coming down,long-term investors are likely better served by extending the maturity of cash holdings into short-to intermediate-term maturity bonds and taking advantage of still high bond yields.Overall:Remain informed and mindful of

29、changing market trends.Be ready to make tactical adjustments to portfolios if,and when,market conditions change.Higher for Longer Continues?The bond market clearly remains in flux after another volatile year.But as things calm,there should be plenty of opportunities in fixed income.Looking ahead:Exp

30、ect a range-bound yield environment:Ten-year Treasury yields are expected to remain in a range of 3.75%to 4.25%in 2025.The risks next year for yields are roughly equal,with potential upside pressures from fiscal deficits and Treasury supply,and downside risks from a more aggressive than anticipated

31、Fed rate-cutting cycle.Stay focused on income:Given the expected higher for longer and range-bound interest rate environment,a focus on income generation is advised for bond investors.The next year will provide more of an opportunity for investors to take advantage of attractive yields in the bond m

32、arket.Balance yield and risk:Considering the uncertainty surrounding future interest rate movements,now is not the right time to have above benchmark exposure to bonds with longer maturities and a higher degree of sensitivity to interest rates.Intermediate-term maturities of five years or less are f

33、avored in the current environment and look the most attractive in terms of generating optimal yield and managing risk.OVERVIEWB O N D M A R K E TT H E B OT TO M L I N E5|LPL Research By Jeffrey Roach,PhD,Chief Economist As we set out to understand the landscape for 2025,its helpful to take a quick l

34、ook back at some of the noteworthy moments in the recent past.Investors,both at home and abroad,have experienced the most aggressive rate-tightening cycles in modern history,and so far,nothing serious has broken.In fact,central bankers have moved into a new regime that of cutting rates and investors

35、 have happily responded with increased risk appetite pushing some areas of the market to new highs.After a very well-telegraphed and much-anticipated decision,the Fed cut rates by a total of 75 basis points as of the end of November and continues to say the risks to inflation and employment are roug

36、hly in balance.However,the economic outlook still remains uncertain for the Fed.Although the rate of consumer price increases has slowed,price levels continue to rise,putting acute pressure on some parts of the economy.As Charles Dickens complained about the obvious inequalities of his times,feeling

37、s in 2025 will be simultaneously the best of times and the worst of times.It all depends on who you are.Are you a renter or a homeowner?Are you still benefiting from flexible work arrangements?Where do you sit on the income spectrum?In our 2024 Midyear Outlook:Still Waiting for the Turn,we highlight

38、ed the economy was a lot less rate sensitive and household financial conditions improved for millions who refinanced in 2021,when rates were historically low.We now have key income and savings data revised,putting a twist in the forecasts.Consumer Slowing,but Policy Tailwinds Are ExpectedPent-Up Dem

39、and for CAPEX Could Support GrowthExpect R&D to make up more of the economyQ320196.5%6.0%5.5%5.0%Q32021Q32020Q32022Q32024Q32023 Intellectual property products as%of GDPSource:LPL Research,U.S.Bureau of Economic Analysis,11/02/24.Past performance is no guarantee of future results.01fig.ECONOMYKEY EXP

40、ECTATIONS Look for the economy to cool down in 2025,but avoid a significant slowdown Anticipate some easing in consumer spending and a continued drift higher in unemployment Inflation should remain contained,but will see occasional upticks as new policies are digestedOutlook 2025|6Data revisions and

41、 data dependencyRevisions occur as government agencies get more information and further revisions can highlight the inherent risk of being data dependent.For example,inflation-adjusted disposable income,which is after taxes,grew much faster over the past 24 months than originally thought.Because of

42、high labor demand and plenty of job-switching,workers saw their wages and salaries grow faster than inflation in the past two years.This explains a lot of why weve noticed consumers spending despite high price levels.Earlier this year,one of the growing concerns among investors was the unknown impac

43、t of depleted savings.But after recent income and spending revisions,consumers are saving a lot more than originally estimated.If disposable incomes grew faster than originally thought and real spending also grew,but at a slower pace,then by definition,consumers now have a larger portion of their mo

44、ney in savings.Just take this past July,for example.The initial estimate for Julys personal savings rate was 2.9%,but after a more complete analysis,consumers personal savings rate was revised up to roughly 5%.This is getting close to the pre-pandemic average of 6.5%.A higher savings rate means cons

45、umers have a bit more of a buffer to manage any potential shocks.Business spending could support growthBefore we discuss consumer spending which makes up roughly two-thirds of the economy investors need to understand some of the potential opportunities we should expect from capital expenditures(CAPE

46、X).Many businesses admitted they delayed business fixed investments preceding the presidential election and planned to wait until after results were finalized,allegedly after an extended period of drawn-out vote counting.However,that scenario did not play out.The historical contribution of private s

47、ector capital expenditures to overall growth is normally twice as high as it was in the third quarter of 2024,supporting the notion that businesses might have pent-up demand now that we are past the elections.Fig.01 Construction spending for healthcare,power,communication,and other structures is poi

48、sed to increase,and shipments of capital goods are below current run rates,corroborating business owners comments about delaying,but not canceling,capital expenditures.In addition to the pent-up demand for CAPEX,a pro-business tax and regulatory plan could also increase business spending while provi

49、ding a modest tailwind to the economy.On balance,this should be enough of a boost to growth to offset some ease in consumer spending and set us up for stable,but unspectacular,gross domestic product(GDP)growth in 2025.Well-heeled millennials could keep consumer spending goingFor some,entering 2025 i

50、s truly the best of times especially since average annual spending for those in their“mid-life”is significantly above other age cohorts.Fig.02 Wage growth has more than Consumer Spending Driven By 35 54 Year OldsMillennials are reaching peak spending years$0$100K$50K Average annual expenditure in 20

51、23 by age rangeSource:LPL Research,U.S.Bureau of Economic Analysis,11/09/24Under 2525-3435-4445-5455-6465-7475 and over02fig.ECONOMY7|LPL ResearchECONOMYoffset inflation,and a large swath of the population is just about to enter their peak earnings and spending years.But we dont need to restrict our

52、selves to just wages.Something we dont often talk about in our annual outlooks but is something extremely important for those in the financial planning space,is the upcoming“Great Wealth Transfer.”Over the next two decades,millennials and younger generations are expected to receive over$84 trillion

53、from the Boomers and Silent Generation.For perspective,annual GDP in 2023 was a mere$27.7 trillion.As they move into their peak earnings and spending years,millennials especially those with upper incomes will likely drive spending in the near future.Recipients from that upcoming intergenerational we

54、alth transfer may have even more capacity to drive consumer spending.Companies whose main target audience is the well-heeled millennial should continue to benefit.Fig.03 This new year will be one where businesses will flourish if they can attract and retain a loyal base of these clients.Investors co

55、uld reward such businesses throughout 2025.Inflation remains stubbornWe could see some upticks in the Feds preferred inflation metric,the Personal Consumption Expenditure(PCE)price deflator,but overall inflation should remain contained.Fig.04 This is noteworthy because nagging inflation could change

56、 the Feds 20172019202120232025FORECAST10%9%8%7%6%5%4%3%2%1%0%-1%Upper Income Households Provide the Biggest SupportInflation Closing In on Feds TargetTop two quintiles account for vast majority of spendingRate cuts will likely continue throughout the yearSource:LPL Research,BLS Consumer Expenditure

57、Survey,11/08/24Source:LPL Research,Bureau of Labor Statistics,Bureau of Economic Analysis,11/07/240%40%20%03fig.04fig.PCE Y/Y%Core PCE Y/Y%Lowest 20%2nd3rd4thTop 20%Q1-24Q2-24Q3-24Q4-24*Q1-25*Q2-25*202220232024*2025*Real GDP(Q/Q annualized)1.6%3.0%2.8%1.7%1.5%1.9%2.5%2.9%2.5%1.9%Unemployment Rate3.8

58、%4.0%4.2%4.4%4.5%4.7%3.6%3.6%4.2%4.8%CPI(YoY)3.2%3.2%2.6%2.7%2.5%2.4%8.0%4.1%2.8%2.6%PCE(YoY)2.7%2.6%2.3%2.4%2.3%2.1%6.6%3.8%2.4%2.3%Core PCE(YoY)3.0%2.7%2.7%2.7%2.3%2.0%5.4%4.1%2.7%2.2%Fed Funds(Upper Bound)5.5%5.5%5.0%4.75%4.5%4.25%4.5%5.5%4.75%3.75%Prime Rate8.5%8.5%8.0%7.75%7.5%7.25%7.5%8.5%7.75

59、%6.75%Outlook 2025|8ECONOMYrate-cutting cadence,and markets will have to adjust to yields staying higher for longer.Perhaps the Fed will institute a cut-and-pause cadence to mirror the process during the previous cycle.So,what does this mean for markets,especially after a lively presidential electio

60、n?Markets love clarity,and they were granted exactly that in a convincing way following this election cycle.These events will take time to digest;however,the idea that the markets can now work without the burden of complete uncertainty should be welcomed by investors.Wealthier consumers and business

61、 CAPEX are key to forecasts The economy will likely downshift throughout 2025,as consumer spending slows from recent breakneck speeds.The labor market has also shown signs of a shift.The quits rate fell as workers are less inclined to switch jobs and the average workweek for private payrolls has dec

62、lined,suggesting weaker labor demand.The unemployment rate will stay historically low,but should inch up in the coming quarters.The strength of wealthier consumers keeps inflation stubbornly above the Feds target,indicating the Fed will not likely cut as much as investors originally hoped.Slower pay

63、roll growth and fewer hours worked imply the economy will slow at a measured pace,barring any exogenous shock.Positive signs from businesses about to release pent-up demand for capital expenditures could offset softness in other areas of the economy.Inequality will likely widen in 2025,as those who

64、have the means to spend will likely do so,crowding out others.Demographics will also be an important factor as millennials are just entering their peak earnings and spending years.THE BOTTOM LINEThe economy is anticipated to moderately decelerate throughout 2025,as consumer spending starts to slow f

65、rom its recent rapid pace.The labor market is also showing signs of cooling,with the unemployment rate likely to remain relatively low but rise moderately in the coming quarters.Fig.5 An unexpected sharp increase in unemployment would warn of a more significant economic slowdown.The strength of weal

66、thier consumers may keep inflation somewhat sticky,suggesting the Fed will be less aggressive with rate cuts than the markets anticipate.Slower payroll growth and reduced hours worked point to a gradual economic slowdown,barring any external shocks.Positive signals from businesses planning to releas

67、e pent-up demand for capital expenditures,along with generally supportive fiscal and monetary policy,should help offset softness in some parts of the economy.2025 Quarterly and Annual ForecastsKey U.S.variablesSource:LPL Research.The economic forecasts in this material may not develop as predicted.A

68、nnual GDP figures are Y/Y.*Forecast as of November 25,2024 End of period05fig.9|LPL Research By Jeffrey Buchbinder,CFA,Chief Equity Strategist As the stock market wraps up a strong 2024,and we look ahead to 2025,the economic foundation remains,for the most part,solid.Corporate profits are rising,and

69、 the Fed is cutting rates,which is likely to keep the current bull market on track.In 2025,investors will have to grapple with a market pricing in a lot of good news.Positive surprises that drove stocks higher in the last year may be more difficult to come by over the year ahead.Continued steady gro

70、wth in the economy and corporate profits will be keys to a positive year,balanced against lingering inflation risks,elevated interest rates,and significant geopolitical threats that wont go away.Potential cuts to corporate taxes in 2026 could also offer upside.The road ahead gets tougher as bull mar

71、ket agesThe bull market has entered its third year,having celebrated its second anniversary on October 12,2024.The S&P 500 is up roughly 65%since the move began,with a booming year two(+32%as of November 10,2024)following a below average but respectable year one(+21%).A surprisingly resilient econom

72、y,unwavering trends in technology,moderating inflation,the start of the Feds rate-cutting cycle,and a strong earnings recovery(after the earnings recession ended in 2023)have driven much of the gains.Fig.06A More Measured Approach to 2025 Year Three Tends to Be Good for Bull MarketsYear by year bull

73、 market performanceS&P 500 Index bull markets(1950-current)S&P 500 Index ReturnsSource:LPL Research,FactSet 11/07/24.All indexes are unmanaged and cannot be invested into directly.Past performance is no guarantee of future results.The modern design of the S&P 500 Index was first launched in 1957.Per

74、formance before then incorporates the performance of its predecessor index,the S&P 90.Bear Market BottomBull Market PeakYear 1Year 2Year 36/13/498/2/5640.0%11.9%12.9%10/22/5712/12/6131.5%9.7%-4.8%6/26/622/9/6632.7%17.4%2.3%10/7/6611/29/6833.2%6.6%X5/26/701/11/7344.5%10.2%X10/3/7411/28/8034.6%21.2%-7

75、.1%8/12/828/25/8757.7%2.0%13.8%12/4/877/16/9021.4%29.0%X10/11/903/24/0028.8%5.6%14.3%10/9/0210/9/0733.7%8.2%6.6%3/9/092/19/2068.6%15.9%3.5%3/23/201/3/2274.8%14.0%X10/12/22?21.4%32.2%?Average:.40.2%14.1%5.2%06fig.STOCK MARKETKEY EXPECTATIONS Stocks are expected to deliver modest gains in 2025 A stead

76、y economy,solid corporate profits,and stable Fed policy should help support the market Be prepared for occasional bouts of volatility Outlook 2025|10History suggests that this bull market has a good chance to celebrate its third anniversary.The accompanying table illustrates that in the absence of r

77、ecession,the odds that a two-year-old bull market gets to three are solid.The good news is that for bull markets that get through year three,the average gain for the S&P 500 is 5.2%,with gains in six out of eight years.The bulls that didnt make it through year three were ended by recessions,an overl

78、y aggressive Fed,or,in the case of 1987,excessive speculation.We believe the chances of another positive year in 2025,without the start of a bear market decline,are quite good,supported by the same drivers as 2024,but bull market history tells us to be on the lookout for modest gains.While our expec

79、tation is for modest positive returns in 2025,the longer-term history of bull markets offers cause for optimism.Since 1950,excluding the current period,S&P 500 bull markets have averaged 61 months,and have produced average cumulative gains of 167%.In other words,while volatility along the way is to

80、be expected,this bull market could still have legs.Good combination:Fed rate cuts plus economic growthAfter one of its longest pauses in history,the Fed cut interest rates in September and November.Now,the question is how much support additional cuts may provide for stocks in the year ahead.Based on

81、 the last nine major rate-cutting cycles since the 1970s,the S&P 500 has generated relatively modest average returns of 5.5%during the 12 months following the initial cut of a cycle.Taking out the recession-plagued outliers of 2001,2007,and 2020,the median gain has been 10.8%.Fig.07As with middle-ag

82、ed bull markets,prospects for solid returns in 2025 are favorable if the economy avoids recession.That does not,however,mean we should not expect volatility.In fact,even in non-recession periods of 1984,1989,and 1995,the S&P 500 experienced pullbacks of between five and 10%along the way to double-di

83、git 12-month returns after the initial Fed cut.STOCK MARKETSource:LPL Research,Bloomberg 11/12/24.Disclosures:Past performance is no guarantee of future results.All indexes are unmanaged and cant be invested in directly.Stocks Usually Go Higher After Fed Rate Cuts BeginWhen they dont,as in 81,01,and

84、 07,recessions are usually to blame07fig.07/01/7404/01/8006/01/8110/02/8406/05/8907/06/9501/03/0109/18/0708/01/1940%30%20%10%0%-10%-20%-30%S&P 500 Performance After Start of Fed Rate Cutting Cycles 6 months later 12 months later11|LPL ResearchFORECASTCorporate America continues to do its partThe ear

85、nings growth picture has improved from a year ago.In the past year,stocks went from an earnings recession and widespread recession fears to a now widely-held consensus view that the U.S.economy would continue to grow steadily though perhaps at a slower pace than recent trends and that corporate prof

86、its would grow by double digits.In response to improved corporate profit trends Fig.08,LPL Research is maintaining its S&P 500 earnings per share(EPS)forecasts for 2025 at$260,in line with the long-term average earnings growth rate near 10%.For 2026,LPL Research is initiating a forecast of$275,6%abo

87、ve 2025.Broadly,corporate America will get some help from AI investment and related productivity gains.Banks and energy companies should benefit from deregulation in Washington,D.C.However,some slowing of economic growth,and a likely firmer tariff policy,are among reasons to expect modest earnings g

88、ains in 2026.Possible cuts to corporate taxes also offer potential upside.Valuations raise the bar for corporate AmericaAn improved earnings outlook and high valuations have raised the bar for corporate America,so gains from improved profit growth may already be reflected in prices.Upside surprises

89、may be tougher to come by.In addition,still-high interest rates compress what equity investors are willing to pay for stocks,based on the equity risk premium calculation.Equity investors are not being compensated for the additional risk they are taking on relative to Treasury yields.The equity risk

90、premium,at-0.7%compared to the long-term average of+1.2%,is calculated by taking the earnings yield(earnings divided by price)minus the 10-year Treasury yield.While this statistic helps us pinpoint valuations,the market can trade outside of its valuation equilibrium for an extended period.This occur

91、red in 2024 and may continue in 2025.Magnificent Sevens Earnings Edge Starting to DiminishNarrowing earnings gap could set the stage for shift toward value at some point in 2025Q12023Q12024Q1202560%50%40%30%20%10%0%-10%Q32023Q32024Q32025Q22023Q22024Q22025Q42023Q42024Q42025Source:LPL Research,Bloombe

92、rg 11/08/24.All indexes are unmanaged and cannot be invested in directly.Past performance is no guarantee of future results.08fig.STOCK MARKETS&P 500 Year-Over-Year Earnings Growth S&P 500 Index Magnificent SevenOutlook 2025|12The path to the Feds target inflation level could be bumpy and put occasi

93、onal pressure on rates,potentially weighing on equity valuations.However,a soft-landing scenario with slower growth may help the market declare victory on inflation.If rates move lower,this offers potential valuation upside,as would any cuts in corporate taxes,although these are far from assured.Sen

94、timent getting stretchedWith positive sentiment at record extremes by some measures,risks may be growing for a near-term correction.In fact,U.S.households are as confident as they have ever been that stocks will move higher in the year ahead Fig.09.Though some sentiment readings,such as those taken

95、from the options market,are more subdued,any signs of exuberance call for discipline.Fair value S&P 500 target rangeIn our view,moderating inflation,stable interest rates,and potential double-digit earnings growth in 2025 support above-average valuations.Based on a price-to-earnings(P/E)ratio of 23

96、times the LPL Research forecast for 2026 S&P 500 EPS,our estimated fair-value range for the S&P 500 at year end 2025 is between 6,275 and 6,375.The upside could come from lower interest rates,unexpected productivity gains,or prospects for lower taxes in 2026.Although its not our base-case,a blue-sky

97、 scenario could lift S&P 500 EPS above our$275 forecast and justify slight P/E expansion,potentially putting the index at or above 6,700.Key risks include rising interest rates,an uptick in inflation,tariffs,and bullish sentiment.Investors should consider adding to their equity position during perio

98、ds of market weakness.THE BOTTOM LINEExpect modest stock market gains in 2025,supported by a stable economy,solid corporate profits,and a Fed that is no longer hawkish,as well as some potential deregulation tailwinds.With stocks pricing in a lot of good news,positive surprises may be tougher to come

99、 by,so a repeat of the strong market performance in 2024 is unlikely.With the bull market another year older,interest-rate risk rising,valuations elevated,and still significant geopolitical threats,expect volatility to be more prevalent in 2025.Assuming a forward P/E multiple of 23 times 2026 EPS of

100、$275,LPL Research estimates a fair value target range of 6,2756,375 for the S&P 500 at the end of 2025.Upside could come from lower interest rates,productivity gains,or prospects for further tax cuts.STOCK MARKET1994199720002003200620092012201520182021202460%50%40%30%20%10%0%Source:LPL Research,Conf

101、erence Board,Bloomberg 12/02/24Signs of Exuberance Call for DisciplineOn the year ahead for stocks,U.S.households have never been as confident as they are now09fig.Percent of consumers expecting stocks to increase over the next 12 months13|LPL ResearchFavor communication services and industrialsThe

102、STAAC recommends more economically sensitive,or cyclical,sectors for 2025.Cyclical value stocks,particularly financials and industrials,may garner support in 2025 from deregulation and a potential soft-landing scenario for the U.S.economy.Increased scrutiny on AI investments and rich valuations coul

103、d lead to a bumpy ride for the technology sector.Interest-rate risk has increased for dividend-rich consumer staples,real estate,and utilities post-election.Our favored sectors as 2025 begins include:Communication services:Mega-cap technology stocks and traditional media have enjoyed strong performa

104、nce,and the sector boasts attractive earnings at a reasonable price.Industrials:Beneficiary of the AI data center buildout,defense spending,onshoring,and energy infrastructure.Watch for tactical opportunities in the consumer discretionary and financials sectors,supported by resilient consumer spendi

105、ng and deregulation.Sector RecommendationsSTOCK MARKETOVERWEIGHT Communication services IndustrialsNEUTRAL Healthcare Utilities Consumer staples Technology Financials Materials Consumer discretionaryUNDERWEIGHT Energy Real estateOutlook 2025|14BOND MARKET By Lawrence Gillum,CFA,Chief Fixed Income St

106、rategist To say the U.S.economy has been difficult to read is an understatement.From generationally high inflation and interest rates to concerns about the labor market,its no wonder consumers are unsure about the overall health of the economy.In fact,last June,59%of Americans believed that the U.S.

107、was currently in a recession(it wasnt),according to a survey of 2,000 adults by Affirm.Conversely,prominent economists have downgraded the probability of a recession over the next 12 months to around 15%,which is the average probability of recession in any given year.But the Feds very own recession

108、forecasting model still says there is a 60%chance of recession over the next 12 months huh?But after what looks like a temporary growth scare last summer,economic growth data has been coming in generally better than expected of late,which has helped push Treasury yields higher,while at the same time

109、 pricing out much of the need for an aggressive rate-cutting campaign by the Fed.So,the question for 2025 for fixed income markets is how low will the Fed take the fed funds rate,absent a more material economic contraction?Current market pricing suggests the Fed will take the fed funds rate back to

110、around 3.754.0%in 2025.If markets are right,and the U.S.Treasury yield curve eventually reflects its historical upward-sloping shape,that likely means the 10-year yield should remain around current levels.The spread between the fed funds rate and the 10-year Treasury yield has averaged around+1.1%in

111、 non-recession periods,meaning the 10-year yield,on average,has been higher than the fed funds rate by around 1.1%,albeit with a large range when not in a recession.Fig.10 So,unless or until economic data starts to show signs of a sustained slowdown,the 10-year A Golden Age for Income Investors Yiel

112、d Curve Could Steepen as the Fed Cuts RatesSpread between fed funds rate and 10-year Treasury yield still negativeSource:LPL Research,Bloomberg,11/08/24.All indexes are unmanaged and cannot be invested into directly.Past performance is no guarantee of future results.10fig.43210-1-2199419972000200320

113、06200920122015201820212024Spread between 10-Year and Fed funds rateU.S.recessionAverage spread:1.1%KEY EXPECTATIONS Expect a range-bound yield environment in 2025 Remain focused on income generation and look to secure historically attractive yields in portfolios Intermediate-term maturities are favo

114、red in the current environment as they best balance risk and income potential 15|LPL Researchcould fluctuate between 4.04.5%to start 2025.But if the economy does start to show signs of slowing,the Fed could cut rates more than what is priced in,which would mean the 10-year Treasury yield could get b

115、ack into the 3.754.25%range to end the year,which is our expectation.That said,the risk for the bond market is a Fed that cuts too aggressively into a still-growing economy,which could then potentially rekindle inflation concerns.Moreover,as it relates to the Donald Trump presidency,there is a conce

116、rn that deficit spending(which would have likely happened under a Harris presidency as well)and tariffs could help growth but also keep inflationary pressures elevated.Better economic growth and perhaps a too dovish Fed,along with more policy details from the Trump administration,could push Treasury

117、 yields higher.It will likely take negative economic surprises for yields to fall meaningfully from current levels,so investors should continue to prioritize income opportunities,which remain plentiful.Return of the Treasury term premiumStay with us here;this is where things get wonky,but important.

118、According to economic theory,each security on the Treasury yield curve represents the expected fed funds rate over the securitys maturity,plus or minus a term premium.The Treasury term premium is the additional compensation required by investors who buy longer-term Treasury securities.The term premi

119、um,which is unobservable and hence must be approximated,considers a variety of factors,including Treasury supply/demand dynamics,foreign central bank expectations,and the possibility of future inflationary pressures.And after years of a negative term premium,investors are just now getting compensate

120、d for owning longer-maturity Treasury securities.But that additional compensation is still below longer-term averages.Fig.11So,how does this affect fixed income investors?A positive term premium could keep longer-term interest rates elevated,perhaps even reducing the diversification benefits of core

121、 bonds.Although monetary policy will Investors May Demand Higher YieldsTreasury term premium remains below historical averagesSource:LPL Research,Bloomberg,11/08/24.Past performance is no guarantee of future results.11fig.BOND MARKET1996200020042008201220162020202443210-1-2ACM 10-year Treasury term

122、premiumAverage pre-2015:1.35Outlook 2025|16continue to broadly shape interest rate movements,the positive term premium may begin to dampen the effectiveness of Fed rate cuts in lowering longer-term yields.Moreover,while Treasuries will remain an important safe-haven asset during more pronounced equi

123、ty market selloffs,they may not offer great protection against more ordinary corrections.And,if we assume things get back to normal and the Fed sticks the soft landing,we could see that term premium increase back to long-term averages.As a result,we dont think right now is a good time to overweight

124、duration(interest rate sensitivity)in fixed income portfolios.A neutral duration relative to benchmarks is,in our view,still appropriate.Moreover,for those investors that want to own bonds for income,the belly of the curve(out to five years)remains attractive.Are bond vigilantes headed to the U.S.?E

125、d Yardeni,the veteran strategist,coined the term“bond vigilantes”in the early 1980s to describe investors who sought to exert power over government policies by selling their bonds,or merely threatening to do so.And after a brief hiatus,it seems like the bond vigilantes may be back at least in the Br

126、itish and French government bond markets as weve seen markets pushback on recent budget proposals.But the risk is rising that perhaps the bond vigilantes could be headed to the U.S.While economic growth will remain the driver of interest rates,a secondary risk to rates remains the amount of Treasury

127、 debt needed to fill federal budget deficits that are expected to stay elevated.Per the Congressional Budget Office(CBO),the U.S.government is expected to run sizable deficits over the next decade to the tune of 57%of GDP each year.The deficit is projected to increase significantly in relation to GD

128、P over the next 30 years,reaching 8.5%of GDP in 2054.That growth results from rising interest costs and large and sustained primary deficits.CBO deficit projections assume no new spending initiatives nor an extension of the Tax Cuts and Jobs Act,which is set to sunset at the end of 2025,so the CBO f

129、orecast likely underestimates budget deficits going forward.To fill those deficits,the Treasury Department will need to issue trillions more in Treasury securities.But complicating the math for the Treasury Department,it will also need to roll over more than$6 trillion in Treasury securities set to

130、mature in 2025.Thus,the Treasury will need to find investors for some$8 trillion of Treasury debt over the next 12 months.Fig.12BOND MARKETDebt DelugeOver$6 trillion in Treasury securities mature in 202512fig.2024252627282930313233343536373839404142432044+$7T$6T$5T$4T$3T$2T$1T$0Source:LPL Research,B

131、loomberg,11/08/24 Treasury maturity schedule($Trillions)17|LPL ResearchDespite the mountain of debt and growing interest payments,the U.S.government is not at risk of financial collapse,nor are there concerns as such.As long as Treasuries are considered risk-free securities,there will always be buye

132、rs of Treasuries.Full stop.But with a Republican sweep of Congress and the White House,the deficit will likely remain broadly unchanged at elevated levels in the coming years or perhaps even grow,given what we know so far about Trumps policy proposals.And with the amount of Treasury supply,interest

133、rates may need to stay higher than otherwise expected given economic data alone.And until/unless U.S.debt markets experience market volatility like what took place in the U.K.in 2022 or France in 2024,politicians are unlikely to take deficit spending seriously.We hope were wrong.So where does that l

134、eave us?While a lot of attention is(rightly)focused on budget deficits and the amount of Treasury supply coming to market over the next few years,the primary driver of Treasury yields is still Fed policy.Our base case is that the Fed will take the fed funds rate to 3.75%in 2025.And after a few month

135、s of overly aggressive expectations,markets have generally repriced to be more in line with our expectations.Unless inflationary pressures re-accelerate,Treasury yields are unlikely to surpass the highs reached in 2023.Moreover,the current increase in supply will occur amid a backdrop of slowing inf

136、lation and Fed rate cuts.Investors might require some concessions to digest the larger issues(higher term premium),but the improved outlook for rate volatility in 2025 should attract some additional demand from the sidelines.With the economic data(so far)continuing to reflect a more resilient econom

137、y than originally expected,we think Treasury yields are likely going to stay in a trading range at least in the near term.Despite the ongoing supply discussion,we think the 10-year Treasury yield could end the year between 3.754.25%and into 2025,with risks to both the upside and downside roughly bal

138、anced.In this new,higher-for-longer interest rate environment,income-oriented investors have a plethora of opportunities to build portfolios that can generate income levels in excess of 5%.THE BOTTOM LINEBond yields are expected to remain elevated,with the 10-year Treasury yield likely to remain in

139、a range between 3.754.25%in 2025.Over the next 12 months,we see roughly equal upside and downside risks to yields as the markets grapple with the true impacts of budget deficits,increasing Treasury supply and the scope of the Feds current easing cycle.For fixed income investors,a focus on income gen

140、eration and duration management is advised,and we believe the most attractive opportunities lie in the five-year maturity range.BOND MARKETOutlook 2025|18ALTERNATIVE INVESTMENTS By Jina Yoon,CFA,Chief Alternative Investment Strategist While the second half of 2024 was largely about policy shifts and

141、 a pick-up in volatility,2025 is likely to be more about the impacts of lower rates and the changes in the political landscape.As the Fed has joined the rest of the world in cutting rates,the focus will now move to the size and length of the rate-cutting cycle.Discrepancy between the market expectat

142、ion and the Feds decisions,along with continued policy divergence with other central banks,should result in plenty of investment opportunities for alternative managers and strategies.Lower rates can also have a direct impact on various strategies and sectors.While future shifts in policy are far fro

143、m guaranteed,certain changes like lower corporate taxes,deregulation of various sectors(e.g.,energy,finance and technology),and tariffs have the potential to move the needle in terms of who will win and lose from a country and sector perspective.Fertile environment for low net stock pickersIn terms

144、of hedge fund strategies,we remain positive on equity market-neutral strategies as the uncertainty surrounding the new Trump administrations policies may lead to increased volatility,divergences of individual stocks and sectors,and how they trade versus the broader market indexes.As the market diges

145、ts these changes and begins to distinguish between stocks that are positively and negatively impacted,strong fundamental long/short and market-neutral stock strategies should benefit.The CBOE Implied Correlation Index chart highlights how closely the components of the S&P 500 are tracking against on

146、e another.The historically low level of the index reveals that many stocks are trading independent of broader market factors.Fig.13 This type of market environment is typically beneficial for equity market-neutral strategies.Seizing Opportunities in a Changing Market Stock Dispersion Expected to Con

147、tinuePolicy shifts will drive clear winners and losersSource:Bloomberg,LRL Research 11/01/24.Indexes are unmanaged and cannot be invested into directly.Past performance is not a guarantee of future results.13fig.CBOE 3-month Implied Correlation Index100908070605040302010020202021202220232024KEY EXPE

148、CTATIONS Investors should prepare for a more dynamic market in 2025 and consider alternative strategies for diversification and portfolio enhancement19|LPL ResearchLook for sub-strategy and manager differentiation in global macro and managed futuresWe remain positive on global macro and managed futu

149、res,which tend to perform well in higher volatility environments and can often deliver uncorrelated returns in times of uncertainty.However,we are tempering our return expectations slightly as they should see a reduced yield on their unencumbered cash.Investors are also likely to experience greater

150、differences in performance between various sub-strategies and the geographic regions invested in.We favor more nimble and discretionary global macro managers with broader geographic coverage.For instance,selective emerging market equity and fixed income valuations look attractive,but these would be

151、best traded by local market experts who understand the political nuances,data shortcomings,and limitations of liquidity in these markets.Within managed futures,we have been cautiously monitoring how trend following strategies are positioning themselves.At the time of this writing,their main position

152、ing is in the stock and bond markets and fairly in line with 60/40 portfolios,diminishing some of the diversification benefits investors seek from them.Therefore,we encourage investors to consider a combination of managed futures that have broader market exposures and time horizons.Multi-strategy,mo

153、re than the sum of its partsLastly,we are also positive on multi-strategy“pod shops,”that allocate capital across independent portfolio management teams as they continue to deliver results that prove they are more than the sum of its parts.Fig.14Remaining positive on private credit and infrastructur

154、e with moderationIn the private markets,we favor private credit and infrastructure,but with a slightly tempered view.Private credit has grown significantly over the years and is now a major capital source for businesses and individuals,and we expect it to continue delivering strong yields that are h

155、igher than its public counterparts.That said,the impact of lower rates and increasing competition for high-quality deals makes us slightly moderate our positive view.We also recommend investors look beyond direct lending and participate in complementary opportunities,such as asset-based lending,dist

156、ressed,or special situation strategies.Multi-Strategy Continues to DeliverFaster growth of multi-strategy funds driven by strong inflows and performance 2018201920202021202220232024$1.8T$1.6T$1.4T$1.2T$1T$800M$600M$400M$200M$0Source:HFR,Bank of America,Reuters,LPL Research 11/01/24.14fig.ALTERNATIVE

157、 INVESTMENTSAverage AUM per funds Total industry Multi-strategyOutlook 2025|20The new administrations potential impact on infrastructure is one of the more complex areas to fully grasp.Trumps preference for traditional energy sources could begin to shift how capital is allocated,and renewable energy

158、 projects may be sidelined in favor of oil and gas pipelines and refineries.The potentially new inflationary pressure and secular tailwind of digitalization should continue to support the infrastructure space,but sector and regional factors could produce meaningfully different outcomes.Signs of posi

159、tive signals in private equity,especially in secondary marketsLastly,while we continue to observe subdued deal volumes and slow exits,we are noticing positive signals for private equity.Valuations have now begun to stabilize at attractive levels for new buyers,and lower financing costs could help pr

160、ovide a boost to the space.Private equity will still need to find new buyers for the investments that were made at lofty valuations or come up with alternative ways to return capital to investors.This challenge may have turned into a new set of opportunities in the secondary market for private equit

161、y managers,and we expect this trend to continue.THE BOTTOM LINE Lower interest rates and potential policy shifts will impact markets differently,creating both opportunities and risks.Equity market-neutral,global macro,and managed futures strategies are well-positioned to capitalize on increased vola

162、tility and market dispersion.In the private market space,private credit and infrastructure remain attractive,albeit with some moderation in expectations.While challenges persist in private equity,opportunities should exist in the secondary market.Investors should be prepared for a more dynamic marke

163、t environment in 2025 and consider the use of alternative strategies to further diversification and portfolio enhancement.ALTERNATIVE INVESTMENTSStrategiesOur ViewsPositiveNeutralNegativeLong/Short EquityExpect a more favorable environment for corporates under the new administration,which should ben

164、efit both long-biased and long/short equity strategies as well as market-neutral stock pickers.An increase in volatility and stock market dispersion brought about by market uncertainty and a change in direction in policies will be beneficial for low-net stock pickers.Event DrivenMonitor the improvin

165、g market backdrop associated with lower financing costs and corporate-friendly policies.Global MacroWe continue to see a fertile trading environment for global macro.Broader economic and policy divergences,as well as discrepancies between market expectations vs.reality in terms of rate cuts,should b

166、e beneficial.We favor nimble and discretionary managers with broad geographic coverage.Managed FuturesWhile we remain positive on this“long volatility”strategy,note the decreased yield from cash and the potential reduced diversification benefit trend followers could provide due to their current posi

167、tioning.We favor a combination of managed futures with broader market coverage and different time horizons.Multi-PM Single FundsMulti-strategy funds continue to benefit from the ability to dynamically invest across alternative investment strategies.Specialty StrategiesSuitable for clients who are ab

168、le to tolerate the limited liquidity these strategies may exhibit21|LPL Research By Kristian Kerr,Head of Macro Strategy As we embark on 2025,geopolitical uncertainty remains elevated.The conflict in Ukraine is approaching its three-year anniversary and continues to gradually escalate.Tensions in th

169、e Middle East remain high but have so far avoided a full-scale regional escalation.The recent political shift in the U.S.also introduces a new dynamic to the global stage,with important potential implications for trade relations and geopolitical alliances.From deterrence to escalation in the Ukraine

170、In 2024,the U.S.and its NATO allies authorized the use of advanced weaponry and provided it to Ukraine.While this was intended to deter further Russian aggression,it has also heightened tensions,as Russia perceives these actions as a direct threat and an escalation of the conflict into a broader con

171、frontation.Russia has responded to increased Western military aid by deploying more advanced weaponry in the battlefield,surprising the West with its capabilities.Additionally,Russia has looked to deepen its alliances,securing support from North Korea,Iran,and China.North Korea has provided military

172、 equipment and personnel,while Iran has supplied drones and missiles.China has offered various forms of military and economic assistance.This escalation has further complicated the conflict and makes the prospects for a negotiated settlement more difficult as Putin faces increasing pressure internal

173、ly from Russian hardliners.While the incoming U.S.administration should offer up alternative diplomatic pathways,the ongoing tensions and increasing military involvement will likely cast a large shadow over any potential peace talks.The fragile balance in the Middle East crisisThe steady escalation

174、of tensions in the Middle East has raised concerns about the potential for a wider regional conflict.The conflict,originally initiated by Iranian proxies targeting Israel,has evolved into a direct military exchange between Iran and Israel,marked by targeted and well-telegraphed strikes that seek to

175、minimize civilian casualties and infrastructure damage by both sides.Irans actions appear to be aimed at disrupting regional stability and undermining U.S.influence.A potential U.S.-Saudi military pact could further escalate tensions.However,a coalition of nations,including the U.S.and European powe

176、rs,is working towards a diplomatic solution to de-escalate the situation and at least an interim dtente looks likely.The incoming U.S.administration may also offer a fresh perspective and opportunities for diplomatic engagement.Irans nuclear capability remains a major concern for Israel and the U.S.

177、,but so far,those facilities have been explicitly avoided during retaliatory strikes by Israel,which has prevented a wider confrontation.However,given the clear The International ChessboardGEOPOLITICSKEY EXPECTATIONS Geopolitical uncertainties will persist in 2025 Markets could become more reactive

178、to geopolitical risksOutlook 2025|22threat a nuclear Iran poses,there is risk that the situation becomes more critical in the year ahead and more aggressive steps are pursued by the U.S.and Israel,which could abruptly intensify the conflict.The tariff showdownThe use of international trade as a geop

179、olitical tool will likely increase over the next year as the incoming Trump administration made tariff policy a key focal point of its election campaign.What the new administration actually plans to do remains to be seen.During the campaign,statements were made about implementing tariffs in a variet

180、y of different ways,but another school of thought is that the threat of tariffs could just be a negotiation tactic used to achieve better trade terms and diplomacy goals.Whatever the case may be,the mercantilist and adversarial nature of tariffs will challenge the current order in one form or anothe

181、r.Countries affected by new U.S.tariffs on their exports to the U.S.would likely retaliate by increasing tariffs on imports from the U.S.or by taking action on other matters.The clear risk in this type of environment is the potential for an escalating cycle of retaliation,and investors should be pre

182、pared for much more headline volatility surrounding international trade in 2025.Geopolitical risk and market resilienceMarkets have remained resilient despite geopolitical tensions.While markets are adept at assessing risk,they sometimes can get overly complacent.As geopolitical risks evolve,investo

183、rs need to remain vigilant and prepared to adapt to changing market conditions.Fig.15 THE BOTTOM LINEAs we enter 2025,geopolitical uncertainty remains high.The ongoing conflict in Ukraine continues to escalate;while tensions in the Middle East have avoided full-scale regional conflict the situation

184、remains fragile.A shift in U.S.politics introduces another set of dynamics,particularly with potential trade protectionism and new diplomatic strategies.Given the dynamic geopolitical landscape,investors should adopt a flexible approach and be prepared to adapt their strategies as needed.GEOPOLITICS

185、Source:LPL Research,Bloomberg 11/04/24.All indexes are unmanaged and cannot be invested in directly.Past performance is no guarantee of future results.The S&P 500 Continues Its AscentThe S&P 500 powers through tense geopolitical events15fig.20202021202220232024600055005000450040003500300025002000S&P

186、 500 performanceCOVID-19 2020 election uncertaintyRussia invades UkraineTechnical recessionHamas attacks IsraelTrump assassination attempt China encircles Taiwan23|LPL Research By Kristian Kerr,Head of Macro Strategy Last year brought a blend of strong and weak performances from commodities.While go

187、ld rallied due to geopolitical tensions and central bank buying,many other commodities faced challenges from weaker-than-expected demand from China and oversupply issues.Looking ahead,the wide range of potential policy shifts in the U.S.and around the world,coupled with ongoing geopolitical uncertai

188、nty,suggest commodities will continue to be an important area of focus for markets and policy makers in 2025.The evolving commodities marketWhen many different commodities see their prices rise sharply in tandem over a number of years,this is often referred to as a commodities supercycle.After China

189、 emerged from its COVID-19 lockdowns,there was hope for a new commodities supercycle,particularly fueled by the production of electric vehicles(EVs)and other high-value goods.This was seen as part of Chinas broader shift away from being a producer of low-margin goods,aiming to drive long-term econom

190、ic growth independent of U.S.consumer demand.While certain key commodities used in the production of high-value items did have price increases,the broad supercycle that many anticipated did not materialize.Fig.16 This was largely due to Chinas much slower-than-expected economic recovery over the pas

191、t four years.Are Commodities Due for an Uptick or a Supercycle?Commodity Prices SoftenChinese growth fueled commodities supercycle,now prices stall as Chinese growth slowsSource:LPL Research,Bloomberg 11/05/24.Indexes are unmanaged and cannot be invested in directly.Past performance is no guarantee

192、of future results.Normalized to 100 on 11/04/24.The Bloomberg Commodity Index(BCOM)is a diversified commodity price index comprised of 23 commodities across six sectors.16fig.COMMODITIESBloomberg Commodity IndexBloomberg Commodity Index mid late 2000s1901701501301109070202020042021200520222006202320

193、07202420082009KEY EXPECTATIONS The global buildout of data centers is driving demand for various commodities,notably copper and other critical materials Commodity exposure should be a small portion of well diversified portfoliosOutlook 2025|24Additionally,economic growth outside of the U.S.has been

194、sluggish,with commodity prices rising sporadically,and often only in response to Chinas policy actions or geopolitical developments.Looking ahead to 2025,China will still have an important role in the commodities landscape,particularly as the scale of their potential fiscal stimulus becomes clearer.

195、However,another important factor will be the growing interest in the global expansion of data centers,as this could create another lasting and important source of demand for essential commodities.Whether this leads to a full-fledged supercycle or remains confined to just a specific set of commoditie

196、s is yet to be determined,but the data center trend is gaining momentum.Perhaps more importantly for markets,it represents a potential driver that isnt reliant on Chinese economic policy or geopolitical instability.Rising copper demand and the challenges of securing supply for data centersData cente

197、rs are being developed not only in the U.S.but also across the Middle East and Asia,including China.Copper is a key commodity in data center construction,with projections indicating a 3%annual increase in copper demand in North America alone through 2035.However,securing an adequate copper supply ma

198、y become challenging.Mine output is expected to peak by 2026,and from that point on,new copper projects will be crucial to meet demand.The industrys challenge will be whether it can bring new mines online in time to keep pace with the anticipated demand growth.Other critical materials for data cente

199、r construction include:cobalt,gallium,silicon,lithium,manganese,chromium,graphite,nickel,and tungsten.Many of which,could face similar challenges as copper from a supply perspective.A bright year for gold,but 2025 could be more challengingGold was one of the clear bright spots for commodity investor

200、s in 2024,with the metal on track to gain near 25%for the year.Steady buying by foreign central banks,uncertainty around the U.S.presidential election,and a heightened geopolitical climate all helped to support gold.However,given our expectations of a“higher for longer”interest-rate environment and

201、a firmer dollar,as well as the clear recent slowdown in central bank purchases,gold may face a tougher time in 2025.Geopolitical developments will also play a key role,as new diplomatic efforts by the incoming administration in Ukraine or the Middle East could weigh on the metal if successful but ma

202、y drive prices higher if they fail or the efforts prove only short-lived.Crude oils balancing act between demand and policyCrude oil languished in 2024,largely due to geopolitical tensions in the Middle East failing to cause significant disruptions in production,and China the worlds largest oil impo

203、rter continuing to struggle economically and falling short of demand expectations.Looking ahead to 2025,global geopolitical dynamics and Chinas physical demand needs will remain key factors influencing the oil market,but the incoming administrations energy policies will also play a pivotal role.Duri

204、ng his campaign,Trump expressed strong support for the oil and gas industry,and in his second term it is expected that he will focus on boosting U.S.energy supply through lesser regulation and tax policy.While on the surface these measures should help cap oil prices,U.S.production is already near al

205、l-time highs,suggesting meaningful production increases may be difficult to achieve at least in 2025.Furthermore,with gasoline and crude oil inventories near their lowest levels in five years,there is plenty of risk that oil could surprise the markets by moving higher in 2025,especially if efforts t

206、o replenish inventories begin to markedly accelerate.THE BOTTOM LINESupercycle or not,demand for a broad assembly of commodities will be crucial for new infrastructure projects globally.The data center buildout is poised to require an abundance of commodities,even if not“officially”a supercycle.For

207、investors,commodity exposure should remain as a small portion of a portfolio with diversification across the commodity complex being a necessary part of the strategy.As an adjunct,investors should consider infrastructure opportunities previously mentioned in the Alternative Investments segment of th

208、is report.COMMODITIES25|LPL Research By Adam Turnquist,CMT,Chief Technical Strategist The dollar continues to shine against a backdrop of synchronized monetary policy easing.Relative strength and stability in the greenback have been underpinned by a resilient U.S.economy,an expected slow and steady

209、approach to future Fed easing,and brewing uncertainty over the last mile lower for inflation.Of course,with currencies,its all relative,and when you compare domestic growth to other developed countries,its no wonder the dollar remains the currency of choice.Germanys economy,Europes largest and the t

210、hird largest in the world,is expected to shrink 0.2%this year,marking its second straight year of contraction.Anemic growth in Germany has weighed on the broader Eurozone outlook,with forecasts calling for GDP growth of only 0.7%in 2024 and 1.2%in 2025.This compares to 2024 and 2025 U.S.growth estim

211、ates of 2.6%and 1.9%,respectively.While the weaker growth profile of Europe reduces inflation risk,it also supports a more dovish stance from the European Central Bank(ECB).The rising likelihood of the ECB outcutting the Fed next year has created headwinds for the euro(the largest weighting within t

212、he U.S.Dollar Index),a theme we expect to continue into 2025.This economic backdrop has also reinforced interest-rate differentials in favor of the dollar and created notable headwinds for emerging market(EM)economies a strong dollar generally creates capital outflow pressure within EM,increases the

213、 cost of carrying U.S.-denominated debt in local currency terms,and weighs on EM export activity.According to the International Monetary Fund(IMF),a 10%appreciation in the U.S.dollar decreases EM economic output by 1.9%after one year,compared to an output decrease of only 0.6%for advanced economies.

214、Although not an EM country,Japans yen has been on the losing end of global rate differentials for the last couple of years.To spur sustainable inflation and support economic growth,the Bank of Japan(BOJ)kept interest rates extremely low over the last two years as other global central banks raised ra

215、tes aggressively.The diverging policy paths made the yen a popular funding currency for the carry trade,where investors borrow in a low-rate currency to fund the purchase of a higher-yielding currency.Some of these trades were unwound over the summer as the BOJ raised its target rate to 0.25%in July

216、.However,even after factoring in the prospect of additional BOJ hikes in 2025 and potential rate cuts from the Fed,interest-rate differentials will likely remain wide and put downward pressure on the yen.Politics could be a major factor in currency market volatility next year.President-elect Trump h

217、as proposed a 10%blanket tariff and additional tariffs on China,Mexico,and Canada.They also raise the risk of triggering a full-blown trade war as countries retaliate with tariffs on U.S.imports,potentially driving up inflation and putting upward pressure on Treasury yields and the dollar.Other coun

218、tries,especially the more export-reliant,may also have to King Dollar Continues to Reign CURRENCIESKEY EXPECTATIONS The U.S.dollar is expected to remain firm in 2025,supported by a resilient U.S.economy,gradual Fed easing,and uncertainty over inflation The euro may face headwinds due to slower growt

219、h in Europe and a more dovish European Central Bank,while the yen could be pressured by wide interest-rate differentials despite potential Bank of Japan hikesOutlook 2025|26devalue their currencies to offset the higher tariffs.Given this backdrop and the wide latitude Trump will have on implementing

220、 tariffs,we expect currency volatility to remain elevated in 2025.From a technical perspective,we believe significant upside risk to the dollar could be limited in 2025.The U.S.Dollar Index has been contained within a range over the last two years,marked by support near 100 and resistance around 107

221、.Fig.17 And while recent upward momentum could push the dollar into the upper end of the range,a breakout appears unlikely.THE BOTTOM LINEThe dollar continues to reign across global currency markets.Solid economic growth,especially compared to other developed countries,has been a major driver of str

222、ength and stability in the greenback.Developing uncertainty over the trajectory of inflation,expectations for gradual easing from the Fed,and positive interest-rate differentials have further supported the dollar.President-elect Trumps proposed tariffs could elevate currency market volatility and st

223、oke inflation fears,putting additional upward pressure on the dollar.Based on this backdrop,we believe the dollar will be well-supported in 2025.We expect limited downside risk,while meaningful upside could be capped by the gravitational pull of a less hawkish Fed.CURRENCIESSource:LPL Research,Bloom

224、berg 11/11/24.Past performance is no guarantee of future results.All indexes are unmanaged and cant be invested in directly.Dollar Tailwinds Build Into 2025The greenback remains range-bound and relatively stableNOV 2021NOV 2022NOV 2023NOV 2024MAY 2022MAY 2023MAY 20241151101051009590U.S.Dollar Index1

225、7fig.DOLLAR RESISTANCEDOLLAR SUPPORTASSET CLASS StocksExpect modest gains and more volatility in 2025.A solid economic and corporate profit backdrop along with Fed rate cuts are balanced against lingering inflation,a risk of higher interest rates,tariffs,and geopolitical threats.Continue to favor a

226、patient approach geared toward buying dips.BondsFixed income provides attractive income opportunities with starting yields still elevated(relative to history).With few signs of a slowing economy,investors should prioritize coupon clipping as opposed to expected price appreciation.However,while curre

227、nt yields for bonds and cash are similar,bonds offer portfolio preservation and potential price appreciation if an unexpected event occurs that would negatively impact the economy.CashWith the Fed cutting short term interest rates,cash rates will continue to fall.And while cash rates are likely goin

228、g to stay above levels experienced pre-COVID-19,long-term investors are likely better served by extending the maturity of cash holdings(not too far out on the Treasury curve)and taking advantage of still high bond yields.Alternative InvestmentsLower rates and political shifts will impact each altern

229、ative strategy differently in the year ahead.Sub-strategy and manager differentiation is essential in achieving the benefit of diversification and outperformance potential.In the current environment we favor Equity Market Neutral,Global Macro,and Multi-Strategy in portfolios.OverweightNeutralUnderwe

230、ightStrong UnderweightStrong OverweightEQUITIESGeographyU.S.LPL Research expects the U.S.economy to handily outgrow and outearn Europe and Japan in 2025,a position likely strengthened by Trumps trade policy and a potentially strong U.S.dollar.Additionally,the AI boom justifies an innovation premium,

231、supporting elevated U.S.valuations.Developed InternationalEuropean economies have seemingly stabilized,and attractive valuations and corporate reforms in Japan are supportive of international equities longer term.However,Trumps trade policies and related dollar strength will likely be drags.Emerging

232、 MarketsEmerging markets face heightened trade risk as tariffs increase and accelerate the pace of de-globalization.Earnings weakness and continued geopolitical risk in Asia and the Middle East remain overhangs on the asset class despite attractive valuations,Fed rate cuts,and prospects for more Chi

233、na stimulus.Style and Market CapitalizationLarge GrowthThe AI-fueled earnings on the growth side help justify rich valuations,and large cap companies enjoy superior earnings power and may outperform if the economy cools some in 2025.Large ValueA resilient economy and Trumps likely agenda are positiv

234、es for cyclical value stocks,but the resilient economy has weighed on defensive sector performance.Value stocks are more attractively valued than normal,and the earnings gap is poised to narrow in coming quarters.Staying near neutral but watch for value opportunities.Small and Mid-Cap GrowthLow valu

235、ations,healthy credit markets,and the possibility of lower taxes are supportive.Enthusiasm surrounding benefits of Fed rate cuts for small caps may be overdone.Potential slowdown in the economy in 2025 is a key risk.They are also less likely to be exposed to new tariffs than large caps.Small and Mid

236、-Cap ValueAs with large value,small/midcap value stocks may benefit from a resilient U.S.economy,while valuations are attractive versus history.Regional banks could benefit from deregulation.However,an economic slowdown may limit potential upside.27|LPL ResearchTACTICAL SUMMARYPutting It All Togethe

237、rA Summary of the STAACs 2025 Tactical ViewsOverweightNeutralUnderweightStrong UnderweightStrong OverweightFIXED INCOMECore SectorsU.S.TreasuriesThe U.S.Treasury yield curve remains relatively flat,so the risk of a meaningful fall in longer-maturity yields is limited,in our view.Absent a sharp unexp

238、ected fall in economic growth,we think the 10-year yield is likely to remain range-bound and will end the year between 3.754.25%.A large amount of Treasury issuance and still unclear economic priorities under the Trump administration remain risks.Mortgage-Backed Securities(MBS)With yields and spread

239、s at multi-year highs,we think MBS remain an attractive investment opportunity,particularly relative to lower-rated corporates.Due to still-high mortgage rates and a lack of prepayments,favorable supply/demand dynamics may help support the market.Additionally,as the Fed continues to cut rates and in

240、terest rate volatility falls,MBS should outperform other high-quality fixed income sectors.Investment Grade CorporatesWe recommend a strong underweight position to benchmarks,but we think there is currently an opportunity to invest in shorter to intermediate maturity corporate securities without tak

241、ing on elevated levels of interest rate or credit risk.Fundamentals remain solid,and a slowing(not collapsing)economy should remain supportive for credit.Treasury Inflation-Protected SecuritiesWhile inflationary pressures have fallen from peak levels,we think inflation volatility could remain higher

242、 than pre-COVID-19 levels.And all-in yields for Treasury Inflation-Protected Securities(TIPS)are attractive and could provide a good hedge against unexpected inflation surprises.Plus SectorsPreferred SecuritiesWe remain overweight Preferreds but acknowledge the next 12 months are unlikely to be as r

243、obust as the last 12 months.Preferreds offer higher credit quality among the riskier fixed income options,while bank fundamentals are generally sound overall.Yields remain elevated relative to history,so the asset class still provides attractive income levels.High-Yield CorporatesYields for high-yie

244、ld bonds are above historical averages but spreads remain near secular tights.A still strong economy should support spreads;however,in our view,further price appreciation is limited.The asset class may be better suited for longer-term minded investors with tolerance for higher volatility and risk.Ba

245、nk LoansGiven the variable-rate debt,higher interest rates may make repayment more challenging for some issuers and the default rate for loans has increased recently.Fewer investor protections and the illiquidity of individual loans remain concerns as well.Yields for the asset class remain above his

246、torical averages,but given the risks of the two leveraged credit asset classes,we have a slight preference for high-yield bonds over loans.Foreign Developed Market BondsNon-U.S.developed bonds provide potential diversification benefits to a U.S.economy that may have stickier inflation than their Eur

247、opean counterparts.Were neutral on foreign bonds,but given the potential for additional ECB rate cuts,foreign bonds ex-Japanese government bonds may outperform.Currency volatility remains a concern though,so investors may be better served by using a currency-hedged option.EM DebtEM central banks are

248、 slightly more accommodative than the Fed,but with over 70 emerging markets,its hard to find commonality in the asset class.Valuations are relatively attractive,but idiosyncratic risks remain.A strong dollar could provide a headwind to prices.Liquidity is also an added risk during periods of market

249、stress.Outlook 2025|28TACTICAL SUMMARYThe Strategic and Tactical Asset Allocation Committee(STAAC)is the investment committee broadly charged with overseeing the investment decisions for LPLs discretionary asset allocation platform.The 11-member committee is comprised of the senior members within LP

250、Ls Research department and is responsible for the firms capital market views that ultimately form the firms asset allocation decisions.The STAAC determines the firms investment outlook and asset allocation that helps define LPL Researchs investment models and overall strategic and tactical investmen

251、t guidance.That guidance is delivered via recommended allocation weightings and a suite of strategy reports,articles,chart analysis,videos,and podcasts.The committee is chaired by the chief investment officer and includes investment specialists from multiple investment disciplines and areas of focus

252、.The STAAC meets weekly to foster the close monitoring of all global economic and capital market conditions,and to ensure the latest information is analyzed and incorporated into our investment thought.Our InvestmentCommittee is Your Investment CommitteeLawrence Gillum,CFA Chief Fixed Income Strateg

253、istMarc Zabicki,CFAChief Investment OfficerAdam Turnquist,CMTChief Technical StrategistKristian KerrHead of Macro StrategyGarrett Fish,CFAHead of Model Portfolio ManagementJason Hoody,CFAHead of Investment Manager AnalysisJeffrey Buchbinder,CFA Chief Equity Strategist Jeffrey Roach,PhD Chief Economi

254、stScott FroidlInvestment AnalystGeorge Smith,CFA,CAIA,CIPMPortfolio StrategistJina Yoon,CFAChief Alternative Investment Strategist29|LPL ResearchSTAACOutlook 2025|30GENERAL DISCLOSURESThe opinions,statements and forecasts presented herein are general information only and are not intended to provide

255、specific investment advice or recommendations for any individual.It does not take into account the specific investment objectives,tax and financial condition,or particular needs of any specific person.There is no assurance that the strategies or techniques discussed are suitable for all investors or

256、 will be successful.To determine which investment(s)may be appropriate for you,please consult your financial professional prior to investing.Any forward-looking statements including the economic forecasts herein may not develop as predicted and are subject to change based on future market and other

257、conditions.All performance referenced is historical and is no guarantee of future results.References to markets,asset classes,and sectors are generally regarding the corresponding market index.Indexes are unmanaged statistical composites and cannot be invested into directly.Index performance is not

258、indicative of the performance of any investment and does not reflect fees,expenses,or sales charges.All performance referenced is historical and is no guarantee of future results.Precious metal investing involves greater fluctuation and potential for losses.Any company names noted herein are for edu

259、cational purposes only and not an indication of trading intent or a solicitation of their products or services.LPL Financial doesnt provide research on individual equities.All index data from FactSet or Bloomberg.All information is believed to be from reliable sources;however,LPL Financial makes no

260、representation as to its completeness or accuracyGENERAL RISK DISCLOSURESInvesting involves risks including possible loss of principal.No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.There is no guarantee that a diversified portfo

261、lio will enhance overall returns or outperform a non-diversified portfolio.Diversification does not protect against market risk.Investing in foreign and emerging markets debt or securities involves special additional risks.These risks include,but are not limited to,currency risk,geopolitical risk,an

262、d risk associated with varying accounting standards.Investing in emerging markets may accentuate these risks.GENERAL DEFINITIONSGross Domestic Product(GDP)is the monetary value of all the finished goods and services produced within a countrys borders in a specific time period,though GDP is usually c

263、alculated on an annual basis.It includes all of private and public consumption,government outlays,investments and exports less imports that occur within a defined territory.The PE ratio(price-to-earnings ratio)is a measure of the price paid for a share relative to the annual net income or profit ear

264、ned by the firm per share.It is a financial ratio used for valuation:a higher PE ratio means that investors are paying more for each unit of net income,so the stock is more expensive compared to one with lower PE ratio.Earnings per share(EPS)is the portion of a companys profit allocated to each outs

265、tanding share of common stock.EPS serves as an indicator of a companys profitability.Earnings per share is generally considered to be the single most important variable in determining a shares price.It is also a major component used to calculate the price-to-earnings valuation ratio.The Standard&Poo

266、rs 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.The Bloomberg U.S.Aggregate Bond Index is an index of the U.S.investment-grade fix

267、ed-rate bond market,including both government and corporate bonds.A companys market capitalization is the market value of its outstanding shares.Market capitalization is calculated by multiplying the number of a companys shares outstanding by its stock price per share.Classifications such as large-c

268、ap,mid-cap and small-cap are only approximations and may change over time.EQUITY RISKInvesting in stock includes numerous specific risks including the fluctuation of dividend,loss of principal and potential illiquidity of the investment in a falling market.Because of their narrow focus,sector invest

269、ing will be subject to greater volatility than investing more broadly across many sectors and companies.Value investments can perform differently from the market as a whole.They can remain undervalued by the market for long periods of time.The prices of small and mid-cap stocks are generally more vo

270、latile than large cap stocks.EQUITY DEFINITIONSCyclical stocks typically relate to equity securities of companies whose price is affected by ups and downs in the overall economy and that sell discretionary items that consumers may buy more of during an economic expansion but cut back on during a rec

271、ession.Counter-cyclical stocks tend to move in the opposite direction from the overall economy and with consumer staples which people continue to demand even during a downturn.Growth stocks are shares in a company that is anticipated to grow at a rate significantly above the average for the market d

272、ue to capital appreciation.A value stock is anticipated to grow above the average for the market due to trading at a lower price relative to its fundamentals,such as dividends,earnings,or sales.Value stocks are anticipated to grow above the average for the market due to trading at a lower price rela

273、tive to its fundamentals,such as dividends,earnings,or sales.Large cap stocks are issued by corporations with a market capitalization of$10 billion or more,and small cap stocks are issued by corporations with a market capitalization between$250 million and$2 billion.FIXED INCOME RISKSBonds are subje

274、ct to market and interest rate risk if sold prior to maturity.Bond values will decline as interest rates rise and bonds are subject to availability and change in price.Bond yields are subject to change.Certain call or special redemption features may exist which could impact yield.Government bonds an

275、d Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and,if held to maturity,offer a fixed rate of return and fixed principal value.Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to

276、 market,interest rate,and credit risk,as well as additional risks based on the quality of issuer coupon rate,price,yield,maturity,and redemption features.Mortgage-backed securities are subject to credit,default,prepayment,extension,market and interest rate risk.FIXED INCOME DEFINITIONSCredit Quality

277、 is one of the principal criteria for judging the investment quality of a bond or bond mutual fund.As the term implies,credit quality informs investors of a bond or bond portfolios credit worthiness,or risk of default.Credit ratings are published rankings based on detailed financial analyses by a cr

278、edit bureau specifically as it relates to the bond issues ability to meet debt obligations.The highest rating is AAA,and the lowest is D.Securities with credit ratings of BBB and above are considered investment grade.The credit spread is the yield the corporate bonds less the yield on comparable mat

279、urity Treasury debt.This is a market-based estimate of the amount of fear in the bond market.Base-rated bonds are the lowest quality bonds that are considered investment-grade,rather than high-yield.They best reflect the stresses across the quality spectrum.Bloomberg U.S.Aggregate Bond Index represe

280、nts securities that are SEC-registered,taxable,and dollar denominated.The index covers the U.S.investment-grade fixed rate bond market,with index components for government and corporate securities,mortgage pass-through securities,and asset-backed securities.FIXED INCOME ASSET CLASSESMortgaged-backed

281、 Securities(MBS)A mortgage-backed security(MBS)is security that is secured by a collection of mortgages,referred to as a pool.The mortgages are“securitized”,or packaged,together and can be sold to investors.In this structure interest and principal payments from the borrower pass through to the MBS s

282、ecurities holder.Mortgage-backed securities are subject to credit,default,prepayment,extension,market and interest rate risk.High yield/junk bonds(grade BB or below)are not investment grade securities,and are subject to higher interest rate,credit,and liquidity risks than those graded BBB and above.

283、They generally should be part of a diversified portfolio for sophisticated investors.Preferred stock dividends are paid at the discretion of the issuing company.Preferred stocks are subject to interest rate and credit risk.As interest rates rise,the price of the preferred falls(and vice versa).They

284、may be subject to a call feature with changing interest rates or credit ratings.Municipal bonds are subject to availability and change in price.They are subject to market and interest rate risk if sold prior to maturity.Bond values will decline as interest rates rise.Interest income may be subject t

285、o the alternative minimum tax.Municipal bonds are federally tax-free but other state and local taxes may apply.If sold prior to maturity,capital gains tax could apply.Commodities include increased risks,such as political,economic,and currency instability,and may not be suitable for all investors.The

286、 fast price swings in commodities will result in significant volatility in an investors holdings.ALTERNATIVE INVESTMENT RISKS AND ASSET CLASSESAlternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investors portfol

287、io.The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.Hedge funds are private investment partnerships that pool funds.Hedge funds use varied and complex proprietary strategies and invest or trade in complex products,including listed a

288、nd unlisted derivatives.Managed futures are speculative,use significant leverage,may carry substantial charges,and should only be considered suitable for the risk capital portion of an investors portfolio.Private credit is non-publicly traded debt instruments created by non-bank entities,such as pri

289、vate credit funds or business development companies(BDCs),to fund private businesses.Event driven strategies,such as merger arbitrage,consist of buying shares of the target company in a proposed merger and fully or partially hedging the exposure to the acquirer by shorting the stock of the acquiring

290、 company or other means.This strategy involves significant risk as events may not occur as planned and disruptions to a planned merger may result in significant loss to a hedged position.For public use.Member FINRA/SIPC.This research material has been prepared by LPL Financial LLC.RES-0002200-1024A Tracking#658532|LPLE Tracking#658543(Exp.12/25)Not Insured by FDIC/NCUA or Any Other Government AgencyNot Bank/Credit Union GuaranteedNot Bank/Credit Union Deposits or ObligationsMay Lose ValueLPL Research Outlook 2025