2025 Global Equity Outlook
Second Quarter
Key Takeaways
Developed Markets: Our 2025 outlook for developed markets is positive, with improved growth potential driven by valuations we think are attractive and earnings growth outside the U.S.
Emerging Markets: Despite risks posed by higher tariffs and trade policy uncertainties, we believe emerging markets could benefit from strong economic growth and consumer spending throughout the year.
Developed Markets
2025 Outlook: Higher Potential for Broader Growth
After a period of U.S. exceptionalism, we see improving opportunities outside the U.S. as valuations and expectations for earnings growth appear attractive. Companies in non-U.S. developed markets have made improvements, leading to a more positive outlook for 2025 and beyond. For example, Japan’s increased IT spending and corporate governance reforms may encourage better results.
Among U.S. stocks, we expect earnings growth to broaden beyond the Magnificent Seven companies, which have fueled outperformance in recent years. Forecasts call for earnings growth to slow among this group of mega-cap equities compared to 2023 and 2024. At the same time, profits for the rest of the S&P 500® Index, as well as mid- and small-caps, are projected to grow faster, as seen in Figure 1.
Figure 1 | Forecast Expects Stronger Earnings Growth in Small- and Mid-Caps
Data and estimates as of 1/13/2025. Source: FactSet. Forecasts do not guarantee future performance.
Trade policy will be a major topic over the coming year as corporations and investors consider new or higher tariffs. Even in times of imperfect clarity, though, compelling investment opportunities can still be found.
Spending on AI Persists in the Face of New Uncertainty
The launch of DeepSeek’s lower-cost model for artificial intelligence (AI) shocked the world and raised questions about the need for high-dollar investment. Shares of Nvidia, the maker of advanced semiconductors used in AI, suffered a sharp loss after the news broke. While the stock has gained ground since early February, it’s down for the year.
Despite this new development, we think AI could remain a significant growth driver for certain parts of the global economy.
Several companies have signaled plans to continue investing substantial money in data centers, power generation and other AI-related capital spending. Based on their recent earnings calls, Microsoft, Alphabet and other hyperscalers are expected to spend $325 billion on capital expenditures (CapEx) in 2025, up 46% over 2024.
However, tariffs could undermine progress in this field. AI projects rely on a global supply chain, with CapEx spending flowing to countries around the globe. Higher tariffs could make these projects more expensive, dragging on performance.
Greater Demand Could Push Energy Stocks Toward Growth
Increased demand for energy is sparking growth in utilities and energy stocks, areas that traditionally haven’t been seen as growth areas. The growth of AI and the move toward electric vehicles (EVs) support this trend.
In particular, opportunities in alternative sources of energy are inflecting upward. Corporations seek solutions that reduce costs and lower environmental and social risks.
Look at the Trees, Not the Forest
In an uncertain environment, when the overall market may become more challenging, bottom-up stock selection assumes even greater importance. Fundamental analysis can help identify growth drivers and the specific companies benefiting from these forces.
A bottom-up approach should also encourage greater diversification. We expect a well-rounded portfolio to provide greater long-term performance than focusing on one sector or one group of stocks.
Emerging Markets
Changing Economic Conditions Could Benefit Emerging Markets
In recent years, equities in emerging markets (EM) have faced challenges as momentum favored the U.S. and the Magnificent Seven companies in particular. This may be changing.
EM stocks increasingly appear to be undervalued relative to U.S. equities. While tariffs could hinder performance, economic growth and consumer spending in EM countries appear strong. If the U.S. dollar weakens, that could deliver a tailwind for EM equities.
Conditions in EM have generally improved over the years as these countries have exhibited more fiscal discipline, even as the U.S. fiscal position has deteriorated.
Emerging Markets See Increased Risk from Tariffs
The prospect of higher tariffs led many companies to reference tariffs during their fourth-quarter earnings calls. Some also adjusted their guidance to account for higher risk from trade policy.
Despite this, opportunities still exist for EM companies to benefit from higher economic growth and consumer spending, especially if they depend more on domestic markets than international trade.
It’s also helpful to take a longer view of stocks and markets. Though tariffs and trade have captured headlines in the new year, no nation can completely isolate itself and thrive with domestic production alone. We believe this view will eventually prevail.
Select China Stocks Hold Potential Despite Larger Challenges
China, in particular, may face increased risk from U.S. tariffs. Despite a burst of government stimulus, its consumer spending shows continuing weakness. We’re avoiding companies exposed to the export market or the country’s troubled real estate sector.
However, we still see pockets of opportunity in Chinese equities focused on the domestic market and benefiting from specific growth drivers.
For example, travel is holding up as Chinese consumers continue booking domestic and international trips, supporting companies like Trip.com. Demand for EVs is also expected to grow as the government maintains its incentive programs. With that in mind, we think companies like carmaker BYD and EV battery manufacturer CATL are poised to benefit.
References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.
International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
Historically, small- and/or mid-cap stocks have been more volatile than the stock of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.
Diversification does not assure a profit nor does it protect against loss of principal.
Generally, as interest rates rise, bond prices fall. The opposite is true when interest rates decline.
Past performance is no guarantee of future results. Investment returns will fluctuate and it is possible to lose money.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.