Hello,
 

This is David Kelly.
 

I’m Chief Strategist here at J.P. Morgan Asset Management and I head the team that produces the Guide to the Markets. Welcome to the Economic and Market Update for the first quarter of 2025.
 

Despite uncertainty stemming from the U.S. election, shifting monetary policy and heightened geopolitical tensions, 2024 proved to be an impressive year for the economy and financial markets. The U.S. economy was quite resilient, supported by a steadfast consumer. At the same time, inflation continued to drift lower, although downward momentum has faded in recent months, while the labor market appears to have settled into a healthy place. As the new administration takes office in January, investors will be closely watching for more details regarding policy plans and their potential impacts on broader economic conditions.
 

With inflation moderating and the labor market normalizing, the Federal Reserve’s rate cutting cycle is well underway. That said, the outlook for 2025 is largely uncertain. Policies proposed by the incoming administration, should they provide an inflationary impulse, could result in a more gradual pace of policy easing, or an early end to the rate cutting cycle altogether.
 

Still, markets have largely taken this uncertainty in stride. Stocks finished the year over 20% higher on the back of broadening earnings growth and AI tailwinds. Bonds modestly rebounded after a bumpy start, although interest rate volatility has been elevated since the Federal Reserve’s initial rate cut in September. With U.S. equities trading near 22 times forward earnings and credit spreads historically tight, elevated valuations remain a risk. However, a relatively benign economic environment in 2025 should offer investors plenty of opportunities to deploy capital. Those who do so actively and with a keen focus on diversification should be best prepared for any shocks that arise.
 

The Guide to the Markets, now in its 21^st year, is built to illustrate economic fundamentals and investment opportunities and risks. However, it is important to do this concisely. There are over 60 pages in the Guide, but that is far too many for any conversation about the markets.
 

So, what we do here is boil it down to just 12 slides. In particular, we assess the recent performance of the markets and economy, considering trends in growth, jobs and inflation and how policies proposed by the incoming administration could impact the path forward. This is followed by comments on monetary policy and finally, a discussion of the global opportunity set across stocks, bonds and alternative assets.