Geopolitical headwinds may not be enough to knock US equities off their trajectory in 2025, as the incoming administration is expected to implement policy changes that could potentially drive significant and unanticipated ripple effects. At the same time, thematic investing is undergoing a transformation as market data and trading increasingly take on a 24/7 dynamic.
Equities expect ripple effects across a dynamic landscape
US equities have already responded to a series of domestic policy shift projections, and changes likely to unfold within the next several weeks will set the stage for a post-election situation that illustrates the interplay of domestic expectations and broader global trends.
Domestically, the anticipation of corporate tax adjustments and new regulations is fostering investor optimism and resilient consumer sentiment. On a global scale, US markets continue to attract investors due to relatively stable economic conditions compared to challenges faced in other major developed markets.
“Macroeconomic trends shape the global equity landscape. Strategic positioning and a forward-looking perspective remain essential for navigating opportunities and challenges,” said Ryan Peters, Co-Head of Equity Derivatives and Hedge Fund Asset Management Sales Americas, BNP Paribas.
US equities may continue to benefit from ongoing inflows, despite inflationary risks over the medium-term. Should interest rates increase in response to inflation, some market observers believe it is possible we may see further reallocations from bonds into equities.
“In the US we observe a robust market environment, where structural stability and innovation make it interesting for investors worldwide,” said Reyna Venkat, Equity Derivatives Sales & Thematic Strategist, BNP Paribas.
Even with strong fundamentals, markets will be especially sensitive to unanticipated geopolitical developments that force investors to make difficult recalibrations.
Thematic investors surf equities on real-time data and decisions
The ripple effects coming to equity markets should drive waves of change across thematic investing, which continues to attract institutional investors. Prioritising structural, long-term themes over short-term market cycles, and a nuanced understanding of global economic trends, thematic investors look to position themselves for stable returns amid turbulent scenarios.
Institutional investors are adopting more refined approaches to managing portfolio risk. “Factor and sector exposures have been positive contributors to portfolio returns. Institutional investors are focused on their equity exposures, and how they can hedge that risk accordingly,” commented Venkat.
Institutional investors have embraced thematic trading to leverage advanced risk management techniques and focus on factor-based strategies to maximize portfolio resilience. The convergence of these approaches allows for greater adaptability in navigating complex market environments. “In today’s dynamic market landscape, identifying key structural themes that drive long-term growth is key. Leveraging innovation and strategic insights allows investors to stay ahead in an ever-evolving global economy,” said Peters.
Diversification serves as a port in market storms
Investors continue to diversify their priorities, underscoring a broader evolution in market behavior. Tactical and strategic hedging techniques are becoming more refined, responding to a growing array of risks and opportunities.
Additionally, equity factor products are broadening their scope, reflecting the growing demand from asset managers and institutional clients alike. “The traditional focus on hedge fund clients is expanding,” noted Venkat. “We are observing rising interest from asset managers seeking more tailored strategies that go beyond conventional frameworks.” This reflects BNP Paribas’ commitment to supporting clients with innovative tools and insights to address the complexities of an increasingly challenging and rapidly evolving market.
BNP Paribas’ Equity Derivatives sales teams provides innovative strategies to support clients in navigating the complexities of the global equities market.
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