Investing.com — In a wide-ranging note Tuesday, Bank of America analysts outlined ten unexpected scenarios that could shape financial markets in 2025.
Those scenarios are considered strong, contrarian possibilities that BofA believes some investors may not have considered.
Return >20% for the third year in a row: Despite the Wall Street consensus predicting a 10% gain, BofA suggests that a combination of productivity gains, corporate tax cuts and steady passive asset flows could fuel another year of 20%+ returns.
Tariffs Work: Contrary to the belief that tariffs are an ineffective tax, BofA argues that “tough love” for countries with large trade surpluses could spur more U.S. manufacturing, support employment and boost wages.
Capex unlocked by deregulation: Deregulation, driven by new government efficiency initiatives, could significantly reduce red tape, free up business investment and boost economic growth.
AI runs out of training data: BofA says that “2025 could be a plateau year in enthusiasm for artificial intelligence as reality sets in.” The bank says rapid advances in artificial intelligence could face a bottleneck as the industry exhausts human-generated training data, potentially slowing the pace of innovation.
Bond buyers become recusants: With households absorbing significant Treasury losses, BofA speculates on a potential shift in which domestic buyers could pull back, affecting the sustainability of government debt.
The Eurozone gets rid of fiscal restrictions: The bank says a possible shift in German fiscal policy, driven by economic pressures, could lead to increased investment in energy and defense, turning European stocks into attractive value opportunities.
Yen strength weighs on growth in US stocks: A strengthening Japanese yen, combined with tighter monetary policy, could lead to a reversal of capital flows, which would negatively impact growth stocks in the US, according to BofA.
Demand for alternatives creates supply: “Insatiable” demand for private assets could lead to increased access through ETFs and 401(k) plans, but also raises concerns about market transparency and valuations, the bank said.
Cutting the underwater cable: Bank of America warns that geopolitical tensions could escalate with the deliberate disruption of undersea cables, threatening global communications and financial networks.
The fragility of the network leads to large power outages: Aging infrastructure and the rise of intermittent renewables could culminate in costly power outages, the bank warns, adding that this underscores the need for significant investment in grid resilience.
