Guggenheim Partners’ Chief Investment Officer (CIO), Anne Walsh, projected at the World Economic Forum in Davos that the U.S. Federal Reserve will likely implement interest rate cuts approximately every quarter in 2025. This could result in a total reduction of around 75 basis points, potentially reaching a full percentage point by year-end.
Walsh, speaking at the Reuters Global Markets Forum, anticipates a continued easing of monetary policy, although at a more gradual pace than initially expected. This contrasts recent market sentiment, which has shifted towards anticipating only one rate cut this year, with a second remaining uncertain. Previously, expectations leaned towards at least three cuts.
Addressing potential trade tensions, Walsh downplayed the severity of anticipated tariffs proposed by then incoming President Donald Trump. She suggested these measures might be less impactful than widely feared, provided the U.S. dollar maintains its strength as the global reserve currency and continues to attract significant capital inflows. Walsh estimated tariff increases to average below 10% across the board, with a more targeted, country-specific approach.
Turning to the bond market, Walsh observed a period of range-bound trading for the third consecutive year, following a substantial bull run until 2022. She highlighted the volatility within this range as presenting intriguing investment opportunities. Specifically, Walsh pointed to a 5% yield on the 10-year Treasury note as representing an “extreme” and “oversold” scenario, creating a compelling buying opportunity. She also anticipates continued tightness in bond yield spreads, which could further benefit U.S. equities.
Walsh expressed optimism for continued stock market gains, driven by global trends such as advancements in artificial intelligence (AI), energy sector developments, and the reshoring of manufacturing to the United States. She forecasts an 8%-10% return for the S&P 500 by the end of 2025.
Acknowledging potential headwinds, Walsh noted uncertainties surrounding the actual implementation of Trump’s policies and the risk of a more pronounced economic slowdown than currently predicted. She characterized the interplay between politics and policy as a “game of ping pong,” anticipating heightened volatility around key investment themes throughout the year. This dynamic underscores the need for careful navigation and strategic allocation in the evolving investment landscape.
