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Key takeaways

Market insights at a glance

We anticipate a favorable environment for fixed-income investments in 2025 driven by strong global growth, overall progress on inflation and select opportunities arising from market volatility. While the US is likely to continue outpacing other developed market (DM) economies, we anticipate a narrowing growth gap and selective opportunities across various credit markets.

This quarterly summary is intended to aggregate the Firm’s current overall views and present an at-a-glance dashboard covering the following:

  • Growth: We expect global growth to remain positive but slow down somewhat from recent levels.
  • Inflation: We expect global inflation to continue its downward trend, nearing central banks’ 2% target.
  • Rates: We anticipate shorter-term rates will likely decline, providing a more stable source of duration, as they tend to align with potential central bank rate cuts.
  • Monetary Policy: We expect central banks to have room to cut rates further, though the magnitude and timing will vary globally.
  • Credit Markets: We believe that corporate credit fundamentals are strong, given encouraging free cash flow generation and balance sheet health.
  • Geopolitics: Trump’s trade policies, particularly tariffs, are likely to cause temporary market disruptions.

Trump, Tariffs and Protectionist Policies

As featured in our new Macro Market Trends publication, the kickoff of Trump’s second term is almost certain to cause bouts of market volatility, as he made tariff threats a central part of his campaign. The proposed tariffs, particularly targeting China, the eurozone and Mexico, are expected to have significant global economic implications. While the exact timing and severity of any actual tariffs remain uncertain, the shift toward protectionism is clear. The potential tariffs could lead to higher inflation while dampening economic activity for key trading partners. The broader impact likely includes weaker global growth and potential retaliatory measures from affected countries. Latin America, particularly Mexico, could face economic pressures from a stronger dollar and lower oil prices. Japan and the eurozone may experience modest disinflation and weaker growth due to reduced exports. Asian economies, especially China, may mitigate impacts through fiscal and monetary measures. Australia, with its strong trade ties to China, could see softer economic growth and inflation.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. Past performance is no guarantee of future results.

Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. 

International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically. The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries. There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Taiwan could be adversely affected by its political and economic relationship with China.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

US Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the US government. The US government guarantees the principal and interest payments on US Treasuries when the securities are held to maturity. Unlike US Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the US government. Even when the US government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton ("FT") has not independently verified, validated or audited such data.  Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

Franklin Templeton has environmental, social and governance (ESG) capabilities; however, not all strategies or products for a strategy consider “ESG” as part of their investment process.

Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

Issued in the U.S. by Franklin Templeton, One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com. Investments are not FDIC insured; may lose value; and are not bank guaranteed.

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