Actively Investing Through Paradigm Shifts
PGIM asset managers highlight key trends and related opportunities that they believe warrant the most investor attention as 2025 gets underway.
SECULAR GROWTH TRENDS WEATHER CYCLICAL CHANGES
Dec 13, 2024
As market breadth began to expand, we believe that active managers focusing on resilient secular growth trends will be well-positioned to reap the benefits of the new market regime.
Global equities had a notably strong 2024 with artificial intelligence (AI) enthusiasm leading markets higher for most of the year. Market breadth began expanding late in the year with the onset of the Federal Reserve easing cycle and pro-growth expectations from a Republican wave in U.S. elections. While we view the increase in the universe of available opportunities as a healthy development for investors going into 2025, we believe active managers focusing on resilient secular growth trends will be especially well-positioned to reap the benefits of the new market regime.
GROWTH AND VOLATILITY OUTLOOKS DIVERGE
Healthy consumer spending and earnings growth trends enabled the global economy and stock market to power through multiple threats in 2024. Backdrop conditions suggest that both trends will be less supportive in 2025. An uptick in volatility appears likely as markets digest the net implications of fiscal policy’s evolving influence on growth and inflation. Companies with sustainable earnings potential underpinned by durable demand linked to powerful secular growth tailwinds should stand out for their ability to weather the changing macro landscape.
2025 EARNINGS GROWTH FAVORS GROWTH STOCKS
Source: FactSet as of 11/30/2024
"Growth stocks continue to benefit from solid earnings performance, often beating consensus estimates. While valuations are not cheap, we don’t see them as overly extended for companies that can maintain strong growth trajectories."
- Mark Baribeau, CFA, Head of Global Equities, Jennison Associates
AI-RELATED OPPORTUNITY EXPANSION
AI is ushering in the fourth era of computing with unparalleled pace and scale.
- Generative AI: Generative AI is revolutionizing the technology sector and global economy. Still in its infancy, generative AI promises to reshape the business landscape over time.
- Transformational technologies: The first wave of AI investments has emphasized building out the infrastructure and computing power necessary to enable the technology. As we expect this to continue at a more modest pace going forward, we are starting to focus on the next wave of growth from AI use cases and applications. We believe this will help spread opportunities from technology providers and developers to a wide variety of industries as companies use these tools to improve competitive positioning through faster time to market, streamlined customer service, and accelerated efforts to harness data in increasingly sophisticated ways.
OTHER INNOVATIVE SECULAR GROWTH THEMES
- Consumer brands: Softening consumer demand in select areas may pressure certain segments of the luxury market, but we expect ultra-luxury brands to be less impacted. Housing is emerging into a potentially strong secular growth theme given strong demand from the large millennial cohort in their prime housing years amid limited supply.
- Technology enablers: Technology-enabled manufacturing continues to drive revolutionary automation that can lead to enormous productivity gains. There is potential for electrification trends to gain a significant boost from the new U.S. administration.
- Fintech platforms: Consumers and businesses continue to find new ways to gain more convenient and affordable access to financial services, particularly in emerging markets.
- Health care innovation: Health care companies are finding significant opportunities in drug development, personalized treatment, and data analysis.
MB
Mark Baribeau, CFA
Head of Global Equities
Jennison Associates
Seeking Next Growth Winners in a Paradigm Shift
In this video, Mark Baribeau, Head of Global Equity at Jennison Associates, gives insight into emerging growth opportunities.
Broadening Scope for Growth in an Easing Cycle
Jennison Associates’ Mark Baribeau is optimistic about secular growth opportunities.
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