2025 Strategist Outlook: There is an alternative

With volatility and uncertainty taken to new levels this year, confidence in US exceptionalism is waning, and market strategists pick Europe for outperformance in H2 2025.

Not so long ago, TINA – There Is No Alternative – was more than just a reference to the idea that investors had no choice but to buy stocks; more accurately, it was that they had no alternative to the US, in any asset class. But following the announcement of the US’s “Liberation Day” tariff policy, a majority of market strategists said they expected other markets to outperform the US. 

The midyear outlook survey conducted between 16 May and 4 June encompassed 34 market strategists from across the Natixis Investment Managers family. When asked what they think would be the likelier headline at the end of the year, 74% of strategists selected “other markets outperform” over 26% who chose “US stocks outperform.” And among those “other” markets, Europe is the clear winner, with seven in ten (71%) strategists expecting Europe to outperform the US in 2025. 

Is this a new era of European exceptionalism, or is it simply that the US has been comparatively less exceptional than it has been for quite some time, which has allowed Europe and emerging markets to catch up? Only time will tell, but whatever the outcome is, it is likely to be a bumpy ride, as 71% of strategists see volatility remaining elevated in equity markets, while 68% feel the same way for bond markets. 

It is telling, too, that the number of factors the strategists class as headwinds – geopolitics (53%), employment (59%), consumer spending (79%) or a trade war (65%) – sharply outweigh those that are expected to be catalysts: central bank policy (62%) and corporate earnings (47%). 

On the macroeconomic side, strategists continue to place more emphasis on politics than on economic policy, but impacts from both sides remain. This is perhaps most evident in the risk that concerns them the most – US Treasury turmoil.
 

A little less exceptional, a little more volatile

Given that volatility looks likely to be with us for some time, it is understandable that “Treasury market turmoil” emerged as the top risk for strategists, with 85% ranking it as a medium or high concern.
 

Top 5 risks

Combined medium and high risks ranked by their total percentages.
 

Despite their traditional safe-haven status, US Treasuries investors were spooked following the post–Liberation Day sell-off, sparking worries about demand for US government debt. The decline in the world’s reserve asset during an episode of elevated volatility comes as investors are increasingly focused on the US’s growing debt burden. 

This concern is underscored by the number of strategists that said one of the key things investors should know about bonds is that US Treasuries are no longer the safe haven they once were (38%) – a sentiment that European strategists (62%) held more strongly than US-based strategists (24%).
 

Inflation isn’t going away anytime soon but not for the reasons you think

Inflation worries also continue to linger heavily on the minds of strategists: “Inflation” was the second biggest risk, with 79% of respondents scoring it as medium and high. Only one-third (32%) agree that inflation will no longer be a major issue for investors by the end of 2025.

However, in terms of the specific impact of tariffs, three-quarters (76%) of strategists think tariffs will increase inflation only temporarily, vs. 24% who think tariffs will drive persistent reinflation.

Likewise, in the face of heightened market volatility, it’s perhaps no surprise that in the minds of strategists, “consumer confidence” also remains shaky: 74% of respondents marked it as a medium or high risk.

Inflation and instability were also highlighted in the everyday concerns of individual investors, according to results from the recently published Natixis Global Survey of Individual Investors. In that survey, inflation topped investors’ lists of financial fears (51%), and two-thirds globally (66%) say they are currently saving less due to rising everyday prices.¹

Meanwhile, 70% of individuals are also worried about the impact of instability on their finances. As uncertainty prevails, three-quarters (73%) would now choose safety over performance when it comes to their investments, and 72% are concerned that markets will become more volatile moving forward.¹
 

Strategists anticipate rate cuts by most central banks

Natixis strategists were optimistic on central bank policy, few worried that they will fail to effectively manage rates, as six in ten put a central bank mistake as either no risk (3%) or low risk (59%). Meanwhile, most predict one to two cuts by the Fed, the Bank of England and the European Central Bank (ECB). One-quarter (24%) project three to four cuts from the Fed, while one-fifth (21%) saw the same for the ECB. 

The view on Japan, where inflation has finally emerged following a decades-long battle against deflation, is significantly different. Overall, 44% say a rate hike is more likely from the Bank of Japan, and 38% see the central bank taking no action.
 

Number of interest rate moves expected in 2025

Natixis strategists’ calls on where key market measures and macro factors will be at the end of 2025.
 

There’s more to AI than science fiction

Generative artificial intelligence (AI) has been a catalyst for tech growth ever since ChatGPT burst on the scene in the second half of 2022. Strategists predict that AI will continue to have a significant impact on markets over the next two to five years, with 71% suggesting it will alter traditional market patterns and 79% believing it will accelerate day trading. 

However, it’s still too early to be precise regarding how AI will show up on the bottom line: 71% think AI investment needs more time to pay off vs. 29% who expect corporate AI to show up in earnings by the end of the year. Moreover, the opportunities don’t come without risks: 94% of strategists believe AI will increase the potential for fraud and scams over the coming years.

Beyond the impacts on markets, strategists are weighing up the longer-term impact of AI on their own business practices: 88% think AI will unlock new opportunities that were otherwise undetectable; 79% believe it will discover risks we didn’t even know were there.
 

Cash on the sidelines isn’t going anywhere

For the past three years, higher rates have encouraged investors to turn to perceived safety of short-term cash instruments. But Natixis strategists are quick to remind investors that cash isn’t quite all it is cracked up to be, especially as tariff threats put the US dollar under increasing pressure.

When asked for the top risks presented by cash, 41% of those surveyed said “currency depreciation,” echoing the 68% of strategists who predict a weakening US dollar. Meanwhile, 38% saw more attractive returns elsewhere, and 35% said cash rates are not enough to meet long-term goals.
 

The road ahead

Uncertainty over the next move by the US administration and the potential for further geopolitical disruption may loom over markets in H2, but Natixis strategists are confident that there are opportunities to be found. Inflation remains very much a part of the narrative, and interest rate interest rate policy will need to be finely calibrated to thread the needle between inflationary risks and economic growth.

In markets, strategists are focusing on Europe, buoyed by the belief that there is life beyond US exceptionalism. Quality remains the watchword for fixed income, but diversification is becoming increasingly important as is a more active, nimble approach, while in alternatives, strategists suggest that investors will need to play defense and add diversification to address the added uncertainty of H2.

About the Natixis Strategist Outlook

The 2025 Natixis Strategist Outlook is based on responses from 34 experts including 24 representatives from 11 affiliated asset managers, 7 representatives from Natixis Investment Managers Solutions, and 3 representatives from Natixis Corporate & Investment Banking.