(Yahoo! Finance) - Through a month of 2025 outlooks, Wall Street's consensus take on stocks in the year ahead is rather clear.
Strong growth in the US economy is expected to push stocks higher while policies from the new Trump administration drive another year of US "exceptionalism" over other global equities.
But of course, that consensus isn't without risks.
Inflation remains above the Federal Reserve's 2% target, and many believe this could keep the Fed holding interest rates higher for longer. Wall Street's lone bear, Stifel's Barry Bannister, explained a more hawkish Fed could prompt weaker-than-expected economic growth and weigh on equities as the S&P 500 ends the year in the "mid 5,000s."
Bannister is on an island with his call for stocks to fall next year (17 other strategists tracked by Yahoo Finance see the rally barreling forward). But he's not alone in the thought such a scenario could derail the bull market.
During a 2025 media roundtable on Dec. 9, UBS Asset Management's head of multi-asset strategy Evan Brown admitted he's currently positioned for a US exceptionalism scenario. But the broad consensus makes Brown "extremely uncomfortable" and he sees a few things materializing that "may mean that the US is less exceptional than everyone thinks."
Many of them center around the flip side of President-elect Donald Trump's policies.
For starters, Trump's proposal of mass deportations would upend a solid flow of immigration over the last several years that many economists believe has been a key reason the labor market hasn't seen a full downturn over the past years. BNP Paribas chief US economist James Egelhof argued during a 2025 media outlook that mass deportations denting the lower labor force growth could be inflationary — remember how much companies were paying up for talent when there weren't enough workers in 2022 — and eventually lead to a more hawkish stance from the Federal Reserve.
Another part of the consensus reasoning for the US economy to continue to outperform relies on the US placing hefty tariffs on other countries where economic growth is already weak, creating further distance between US economic growth and the rest of the world.
And while everything about Trump's rhetoric, all the way down to his famed catchphrase, screams America first, Brown argues Trump also doesn't want to stoke an already sticky inflation situation. This could prove a key difference in Trump 2.0. Instead of an economy where Americans are looking for more growth like in 2016, this time around voters don't want more inflation.
"I would guess that he's quite aware of the inflationary effects of tariffs," Brown said. "And will be reluctant to do things that meaningfully increase prices that consumers are seeing."
This leads Brown to point to Europe for an investment opportunity that could emerge if tariffs aren't as widespread as feared — and conflict between Russia and Ukraine deescalates. Many of the overstretched metrics in the US are the opposite in areas like Europe, where stocks are seen as undervalued.
Academy Securities head of macro strategy Peter Tchir recently offered a similar take to Yahoo Finance.
"Right now, everyone seems to believe the US is the best game in town," Tchir said. "So I think something has to change in the global narrative where some other part of the world, you start saying, 'actually that looks so cheap, and it looks like that's where the growth story is.'
Tchir said the prospect of another market emerging as an attractive growth area is a key risk for US stocks in 2025, though for now, he doesn't think that's happening. And to be clear, Brown isn't bearish on the US stock market either.
Still, the thought of Europe or any other area outperforming is worthwhile to consider in a year where strategists have warned about heightened uncertainty around policies from both Trump and the Fed.
And it's important to remember why it's being highlighted. For many on Wall Street, investing isn't about what could work, but rather what could work best. And if things shift and the US economy doesn't blow past consensus expectations for the first time since the COVID-19 outbreak, strategists see a case where stocks still go up.
It just isn't the most exceptional trade of 2025.
By Josh Schafer - Reporter
