Investing.com – In a recent note, Bank of America identified 14 key lessons from 2024 that investors should keep in mind as they head into 2025, warning that market momentum and stretched valuations could face headwinds next year.
Although this year resembles the steady gains of 1996-97, rather than the peak of the bubbles of 1998-99, risks are rising – from geopolitical tensions and rising debt to market fragility highlighted by the VIX index.
Bank of America points to opportunities in Europe, China and Japan, but warns that volatility, trade disputes and macroeconomic uncertainty will shape the next phase of the market cycle.
Here are the 14 lessons highlighted by Bank of America.
1. 2024 has been a strong year for markets, but it may be just the beginning.
2. Market performance in 2024 looked more like the flat gains of 1996-97 than the bubble tops of 1998-99.
3. In a bubble environment, market leadership can last longer than investors can afford to stay below their weight.
4. However, the combination of strong momentum and high valuations is already too overvalued to avoid a potential collapse.
5. The report showed that markets remain fragile, and that a major shock may be overdue.
6. August 2024 suggests buying dips in the market and locking in higher volatility; Using smarter strategies such as skewed delta positioning may be key for 2025.
7. High debt levels and persistent inflation mean that bond custodians remain the most visible macroeconomic risk.
8. Market fragility, quick reactions and high valuations suggest that a repeat of the quiet volatility seen in 2017 is unlikely.
9. Trump's election win has raised concerns about tariffs, with European companies favored by a stronger dollar likely to become the next trade targets.
10. European stocks remain cheap and unpopular, and investors should be careful about short exposure, as less crowded trading means suffering less volatility.
11. China could continue to outperform Japan in 2024 if US interest rates fall.
12. VIX options data suggests that market positioning risks have not gone away.
13. Bank profits in the euro zone have outperformed for most of the past year. Investors may need to hedge against different outcomes in 2025.
14. The risk of sharp movements in the Japanese yen, driven by volatility, could lead to instability in 2025.
