Investing.com – In a recent note, Bank of America outlined 14 key lessons from 2024 that investors should keep in mind as they head into 2025, warning that market momentum and inflation could face headwinds next year.
While this year resembles the continued gains of 1996-97, rather than the bubble peaks of 1998-99, risks are mounting—from the country’s tightening and rising debt to market weakness highlighted by the VIX.
BofA points to opportunities in Europe, China, and Japan but warns that volatility, trade disputes, and macroeconomic uncertainty will change the next leg of the market cycle.
Below are 14 courses highlighted by BofA.
1. 2024 was a tough year for the markets, but it could be just the beginning.
2. Market performance in 2024 looks more like the robust gains of 1996-97 than the bubble peaks of 1998-99.
3. In a bubble situation, market leadership can persist longer than investors can afford to remain underweight.
4. However, the combination of high pressure and high pressure has already been stretched too far to avoid a possible explosion.
5. The showed that markets remain fragile, and a major shock may be overdue.
6. August 2024 suggests buying market dips and closing volatile spikes; using smart strategies like tilted delta positions may be the key for 2025.
7. Rising debt levels and persistent inflation mean bondholders remain the most visible macroeconomic tail risk.
8. Market fragility, quick reactions, and high valuations suggest that a repeat of the subdued volatility seen in 2017 is unlikely.
9. Trump’s election victory has renewed concerns about tariffs, with European companies favored by the strength of the dollar likely to be the next targets for trade.
10. European stocks remain cheap and unpopular—investors should be wary of being held for a while, as less crowded trading means less volatility pain.
11. China’s outperformance over Japan in 2024 could continue if US interest rates fall.
12. VIX options data shows that the risk put in the market has not gone away.
13. Eurozone bank shares have performed better than most of the past year; investors may need to hedge against a different outcome in 2025.
14. The risk of a sharp movement of the Japanese yen, driven by volatility, could cause instability in 2025.
