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(Bloomberg) -- A third straight year of outsize gains in US stocks — a display of strength last seen in the 1990s — leads Bank of America Corp.’s list of potential market surprises for 2025.
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It’s a tall order but not unimaginable, according to the firm, which floats the idea in the latest rendition of its list honoring late Wall Street strategist Byron Wien.
After the S&P 500 Index soared 24% in 2023 and 23% in 2024, lofty valuations will make it tough to achieve such a performance again this year, as will risks including extreme concentration and uncertainty around fiscal and monetary policy, BofA strategists led by Jared Woodard wrote in a report this week. The benchmark has sputtered to start the year after setting a record high in early December.
However, a bevy of tailwinds make another big year a contrarian possibility, they say, including: a productivity boom, corporate tax cuts, relentless passive fund flows and the lack of abundant alternative investment destinations.
Other results that could shock Wall Street in 2025 include tariffs spurring higher US production and shrinking the deficit; US households stepping back from buying Treasuries; and a stronger yen forcing unwinds of carry trades similar to the episode seen in August.
Among the potential shockers BofA also lists for the year ahead — the Internet is shut down because cables in the ocean are sabotaged; artificial intelligence models run out of human-created training data; and aging grids cause $600 billion of power outages.
The outcomes aren’t part of the bank’s official forecasts, but it’s worth noting that seven of the 10 surprises that BofA listed a year ago unfolded in 2024.
“Sticky inflation, energy pragmatism, unchained enterprise will be likely themes for the mid-2020s as the shift back to a ‘5% world’ rolls on,” the team led by Woodard wrote. Investors should “expect the unexpected” in the transition, they add.
Wien died in 2023. His annual list of “10 Surprises” — unprecedented financial events he proposed could materialize in the coming year — was an influential tradition across Wall Street.
High Conviction
BofA also outlines some high-conviction ideas. It cites gold, which it calls “the consummate hedge for investors worried about inflation or growth.” The bank lists cites ETF investments linked to nuclear power, and banks on optimism around deregulation and merger activity.