Skip to main content
PGIM InvestmentsPGIM Investments
    • Mutual Funds
    • Target Date Funds
    • Closed End Funds
    • Separately Managed Accounts
    • ETFs
    • Buffer ETFs
    • Alternatives
    • Retirement Spending
    • Thought Leadership
    • Events and Webinars
    • On the Markets
    • Investment Themes
  • Overview
    • Forms
    • Tax Center
    • Corporate Actions
    • Open Mutual Funds Account
    • Overview
    • DCIO Mutual Funds
    • DCIO Target Date Funds
    • Defined Contribution Insights
    • Retirement Spending
  • Overview
    • Newsroom
    • PGIM Custom Harvest
    • PGIM Fixed Income
    • PGIM Real Estate
    • PGIM Quantitative Solutions
    • Jennison Associates
  • Contact
""
Equities

Pockets Of Positivity Amid DisruptionPocketsOfPositivityAmidDisruption

Apr 2, 2025

In its 2Q 2025 Outlook, PGIM Quantitative Solutions outlines the opportunities available for proactive investors.

  • View Full Outlook (PDF)
Share
  • Mail
  • LinkedIn
  • Twitter
  • Copy URL
  • Print

Share

TARIFFS BRING TURBULENCE AHEAD

The second Trump administration has hit the ground running with a slew of measures designed to shake up both policy and the U.S. economy, sending tremors through markets and exposing fault lines in the status quo. The administration’s major initiatives have thus far focused on tariffs, tamping down on illegal immigration, executive branch reform (carried out largely by the newly created Department of Government Efficiency – DOGE), and brokering cease-fires in the conflicts in Israel and Ukraine. Among these, tariff policy has emerged as the most disruptive factor for the economic outlook.

Currently, the Federal Reserve (Fed) is taking a wait-and-see approach. After cutting rates by 100 basis points (bps) in late 2024, the Fed left rates unchanged in Q1 2025 as progress toward its 2% inflation target stalled. The U.S. economy remains in a good place but acknowledged significant uncertainty surrounding the effects of policy changes from the new administration. The futures market is now pricing in roughly three rate cuts by year-end, compared to just 1.5 cuts anticipated before the tariff announcements and subsequent market sell-off. While a recession is not yet evident in the U.S. data, the risk of a recession over the next year has risen, especially if the trade war intensifies and higher tariffs become a reality.

The European economy, in particular, did not enter 2025 firing on all cylinders. Eurozone GDP grew just 0.2% in Q4, following mixed performance in Q3. The industrial sector continues to face headwinds from high input costs and stiff foreign competition. These struggles have fueled concerns about weak growth and potential downside risks to the inflation outlook. Despite core inflation remaining modestly above 2%, the European Central Bank (ECB) has responded by steering policy rates toward neutral. This year alone, the ECB has cut policy rates 50bps, following a 100bps reduction in 2024, bringing the deposit rate to 2.5%. But not all news out of Europe is bleak. NATO governments across the continent have steadily increased military spending, which could provide a stimulative boost to the economy.

The Japanese economy entered 2025 on a stronger footing, with GDP increasing over 2% annualized in Q4 2024 – marking its third consecutive increase. However, inflation remains a persistent concern. While the Bank of Japan (BoJ) left policy rates unchanged in Q4, it kicked off 2025 with a rate hike in January. Adding to inflationary pressures, major companies have agreed to wage increases as part of spring negotiations, which could sustain upward pressure on inflation – and consequently, on policy rates.

China reported robust GDP growth in Q4, allowing it to achieve its 5% annual growth target. The economy was supported by various fiscal and monetary stimulus measures aimed at reversing the slowdown tied to the real estate sector. However, given the challenging external economic environment, these measures may prove insufficient to sustain the target, potentially necessitating further expansion.

 

RESILIENCE AMID UNCERTAINTY

Today’s investment environment is brimming with economic policy uncertainty, from shifting trade policies to unpredictable fiscal moves. Economic policy uncertainty spiked under both Trump administrations, fueled by abrupt shifts in trade and fiscal policies. These policy swings shape market expectations, influence inflation forecasts, and cloud the Fed’s rate outlook. Yet, despite elevated uncertainty, business confidence remains resilient, while consumer confidence shows signs of weakening.

Understanding this policy-driven volatility is critical for asset allocation, as a forward-looking strategy can help portfolios absorb shocks, capture alpha, and distinguish proactive investors from reactive ones.

Topics

  • Insights
  • Outlook
  • Markets
To navigate today’s uncertain investment landscape, staying informed, maintaining flexibility, and preparing for heightened volatility is essential.

NAVIGATING UNPREDICTABILITY IN FINANCIAL MARKETS

Financial market participants have swiftly cast aside their traditional playbooks for predicting market behavior following U.S. elections. Historically, equity markets have turned in muted performance in the run-up to elections, followed by a post-Election relief rally. Initially, markets appeared to follow this pattern, with U.S. equities posting strong gains into early Q1, supported in part by robust economic data despite elevated valuations. However, international equities reacted negatively after then-President-elect Trump announced plans to impose additional tariffs on Mexico, Canada, and China. Subsequently, markets stumbled as the Fed pivoted hawkishly in December. Over the past couple of months, we’ve observed rotations across major asset classes, with U.S. markets lagging due to weaker growth expectations, while China and international stocks have gained amid improving growth prospects and a moderation of extreme tariff concerns. Growth stocks, which were the market darlings of 2024, have lagged value stocks year-to-date. While the Q1 pullback in U.S. stocks has somewhat improved U.S. equity valuations, potential structural changes – particularly in Europe – could further enhance the strategic appeal of international equities.

The dollar, previously buoyed by a much stronger U.S. economy, has softened, providing support to emerging market assets. Meanwhile, gold and commodities have also benefited from elevated inflation concerns.

Credit spreads have widened slightly, but total return expectations for high yield bonds remain solid, supported by higher starting nominal yields, even as the growth environment remains benign. Global government bonds, however, are generally under pressure. While a slower growth environment and expectations of rate cuts could provide support for bonds, bouts of inflation concerns are likely to keep yields range-bound. Furthermore, the potential support for bond yields from central bank policy may be more limited compared to previous years as major central banks, including the Fed and the BoJ, have been signaling a shift toward higher neutral rates.

View Full Outlook (PDF)

For Financial Professional Use Only. Not for use with the public.

 

The views expressed herein are those of PGIM Quantitative Solutions investment professionals at the time the comments were made and may not be reflective of their current opinions and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute an offer to sell or a solicitation to buy any security.

Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information, nor do we make any express or implied warranties or representations as to the completeness or accuracy. Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated, based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.

This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients. The information is not intended as investment advice and is not a recommendation. Clients seeking information regarding their particular investment needs should contact their financial professional.

Prudential Investment Management Services LLC is a Prudential Financial company and FINRA member firm. PGIM Investments is a registered investment advisor and investment manager to PGIM registered investment companies. PGIM Quantitative Solutions is the primary business name of PGIM Quantitative Solutions LLC, a registered investment advisor.  All are Prudential Financial affiliates.

© 2025 Prudential Financial, Inc. and its related entities. PGIM, PGIM Investments, PGIM Quantitative Solutions and the PGIM logo are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide. 

For compliance use only 4365811

  • About Us

    • Overview
    • Newsroom
    • PGIM Fixed Income
    • PGIM Real Estate
    • Jennison Associates
    • PGIM Quantitative Solutions
    • Contact
  • Products

    • Mutual Funds
    • ETFs
    • Buffer ETFs
    • Target Date Funds
    • Closed End Funds
    • Separately Managed Accounts
    • Retirement Spending Funds
  • Insights

    • Thought Leadership
    • On the Markets
    • Investment Themes
  • Resources

    • Overview
    • Forms
    • Tax Center
    • Careers
  • Retirement

    • Overview
    • DCIO Investments
    • Meet the Team
PGIM Investments
  • Terms & Conditions
  • Privacy Policy
  • Accessibility
  • Cookie Preference Center

Proxy Voting Recordsopens in a new window | Audit Committee Charter | Audit Committee Charter (Alternatives)opens in a new window | Directors/Trusteesopens in a new window | Disclosure of Portfolio Holdings | Form 5500 | Nominating & Governance Committee Charter | Nominating & Governance Committee Charter (Alternatives)opens in a new window | Compliance Committee Charteropens in a new window | Sales Load Breakpoints | Customer Loginopens in a new window | Careersopens in a new window

This site is intended for U.S. investors only.  All investments involve risk, including loss of principal.

PGIM, the principal investment management business of Prudential Financial, Inc. (PFI), is comprised of several business units, including PGIM Investments.   PGIM Investments, a subsidiary of PFI, is an investment adviser and the investment manager to all PGIM US open-end investment companies and manager or administrator to closed-end investment companies. Other PGIM businesses that may sub-advise certain PGIM Investments open and closed-end investment companies include:  PGIM Real Estate, Jennison Associates, PGIM Quantitative Solutions LLC, PGIM Limited, and PGIM Fixed Income. Investment products are distributed by Prudential Investment Management Services LLC,  member FINRAopens in a new window, SIPCopens in a new window and affiliate of PGIM Investments.   Any content relating to securities is the sole responsibility of PIMS, unless otherwise noted.  Check the background of this firm on FINRA’s BrokerCheckopens in a new window.

By accessing links on this web site, you may be leaving PGIM Investments and PIMS and be directed to PGIM Affiliate sites.

Separately managed accounts are offered through PGIM, Inc., Jennison Associates, PGIM Custom Harvest, and PGIM Quantitative Solutions LLC.

This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients. The information is not intended as investment advice and is not a recommendation. Clients seeking information regarding their particular investment needs should contact their financial professional.

© 2025 Prudential Financial, Inc. and its related entities. Jennison Associates, PGIM Real Estate, PGIM Custom Harvest, PGIM, and the PGIM logo are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.

Prudential Financial, Inc. of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom.

 

INVESTMENT PRODUCTS: NOT FDIC INSURED | MAY LOSE VALUE | NOT BANK GUARANTEED

 

3972195

 

You are viewing this page in preview mode.

Edit Page