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2024 has been another strong year for the US stock market. While history suggests that another year of significant gains is unlikely, there are some nuances to the market’s performance that are worth noting. In particular, the market has been narrowly led by a handful of companies, with other parts of the market overlooked. This means there are still investment opportunities in the US for the year ahead.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
There are early signs of a shift in US markets. The second half of 2024 saw a sector rotation and overall market broadening away from the largest stocks in the S&P 500.1 As we look towards 2025, on the BlackRock American Income Trust, we believe this is likely to continue and will present attractive stock selection opportunities as the market rewards a larger swath of fundamentally sound stocks. Ultimately, we see enough companies with a compelling growth trajectory and reasonable valuations to maintain a constructive, ‘risk-on’ stance for the year ahead.
Influential factors for the US stock markets in 2025
There are other factors that are likely to be supportive of the stock market in America in the year ahead:
Easing uncertainty: the quick and decisive election result removed a key uncertainty that had been hanging over the market. The rally that followed could be sustained into the start of 2025, as the prospect of tax cuts and deregulation across key industries lends support, even if the impact of some policies such as tariffs and immigration is more uncertain.
An improving economy: the US economy appears strong on many measures. Unemployment has inched up but remains low, consumers are showing resilience, and a tight housing market is contributing to historically high home equity values and a related wealth effect. The IMF is forecasting GDP growth of 2.2% for the US in 2025.2 That is higher than any other G7 economy except Canada.
Corporate change: we’re in a period of accelerating corporate change ― from new products to changes in company leadership and corporate strategy. Merger and acquisition activity has been very strong, with November alone seeing seven $5bn+ ‘megadeals’.3 Technology, oil and gas, and life sciences have been hot spots. At the same time, management turnover, as disclosed in company press releases, has shown a clear uptick. These should all be supportive factors for share prices.
Nevertheless, we cannot overlook the risks. The new administration in the US will bring some uncertainty before its policy agenda comes into focus. There may be new policies around trade and immigration, and there are concerns that they could reignite inflation. A 2024 Strategas study found that high inflation has often come with a second wave. Ongoing geopolitical tensions are also a risk to the US stock market in the year ahead.
Value investing versus growth investing
Value stocks are usually priced below their growth counterparts, but the degree of discount has varied across time. Our research suggests it remains particularly wide today. While valuations appear stretched for some of the high profile growth companies that dominate the market, on the BlackRock American Income trust, we see plenty of value to be found elsewhere. We believe value stocks have ample upside if they start to move back toward historic norms.
Across styles, sectors and geographies, we believe nimbleness and selectivity will be important to navigating markets in the coming months. The transformative effects of mega-trends such as AI, ageing populations, the energy transition, geopolitical fragmentation and shifting supply chains will bring opportunities and risks. If change will be a hallmark of investing in the US in 2025, we expect this will be a pivotal period for active managers with the flexibility and expertise to navigate this fast-moving environment.
Risk Warnings
Investors should refer to the prospectus or offering documentation for the funds full list of risks.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Trust-specific risks
BlackRock American Income Trust plc
Capital Growth / Income Variation: Investors in the Fund should understand that capital growth is not a priority and values may fluctuate and the level of income may vary from time to time and is not guaranteed.
Currency Risk: The Fund invests in other currencies. Changes in exchange rates will therefore affect the value of the investment.
Derivatives Risk: Derivatives may be highly sensitive to changes in the value of the asset on which they are based and can increase the size of losses and gains, resulting in greater fluctuations in the value of the Fund. The impact to the Fund can be greater where derivatives are used in an extensive or complex way.
Derivative Risk (Derivatives, Options, Covered calls): The Fund uses derivatives as part of its investment strategy. Compared to a fund which only invests in traditional instruments such as stocks and bonds, derivatives are potentially subject to a higher level of risk.
Gearing Risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.
Investment Trust Disclaimers: Net Asset Value (NAV) performance is not the same as share price performance, and shareholders may realise returns that are lower or higher than NAV performance.
