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 inflation and inflation expectations could face headwinds next year.
While this year resembles the steady gains of 1996-97, rather than the bubble peaks of 1998-99, risks are increasing—from geopolitical tension and rising debt to market fragility highlighted by the VIX.
BofA points to opportunities in Europe, China, and Japan but warns that volatility, trade disputes, and economic uncertainty will shape the next leg of the market cycle.
Below are 14 studies highlighted by BofA.
1. 2024 was a strong year for markets, but it could be just the beginning.
2. Market performance in 2024 looks more like the sustained gains of 1996-97 than the bubble peak of 1998-99.
3. In a bubble environment, market leadership can last longer than investors can stay under pressure.
4. However, the combination of high speed and high projection has been stretched too far to prevent a possible explosion.
5. The show showed that markets are always fragile, and a big shock may be too late.
6. August 2024 suggests buying market dips and locking in volatility spikes; using smart strategies like putting delta curves may be key in 2025.
7. Rising debt levels and persistent inflation mean that bond watchers often see macroeconomic tail risk.
8. Market weakness, quick reactions, and high prices suggest that a repeat of the quiet volatility seen in 2017 is unlikely.
9. Trump's election victory reignited concerns about tariffs, with European companies favored by a stronger dollar likely to be the next trade targets.
10. European shares remain cheap and unpopular—investors should be wary of being shorted, as less crowded trading means lower pain.
11. China's performance over Japan in 2024 may continue if US interest rates decline.
12. VIX options data shows that risk-taking in the market has not gone away.
13. Eurozone bank shares have performed exceptionally well over the past year; investors may need to hedge against a different outcome in 2025.
14. The risk of sharp movements in the Japanese yen, driven by volatility, could cause instability in 2025.