3 equity themes to watch in 2025

After equity markets climbed a proverbial “wall of worry” in 2024 — including outsized bouts of volatility, significant moves in interest rates and a contentious presidential election — we believe the larger backdrop of a healthy economy and strong earnings growth is a favorable setup for investors in 2025.

However, the new year comes with a lot of unknowns, and the path higher for stocks in 2025 may not be straightforward.

As you evaluate your approach to equities for the year ahead, here are three key investing themes to consider in consultation with your Ameriprise financial advisor:

1.    New administration, new playbook

The new presidential administration and Congressional makeup may bring new investing opportunities, as well as new risks. As you evaluate the potential impact on your investments, remember that, historically, policy proposals often differ from actual legislation, leading to potential market volatility. With this in mind, here are three ideas to consider for your stock portfolio:

• Deregulation: Due to the new administration's ideological shift, expect possible increased merger and acquisition (M&A) activity and deregulation in sectors such as energy, financials, health care and others. Deregulation could lead to cost reductions, enhanced innovation and economic growth, particularly benefiting highly regulated industries.
• Made in the USA: Proposed policies favor deregulation and domestic manufacturing, targeting energy, defense and critical supply chains. This includes boosting liquified natural gas exports, enhancing the U.S. electric grid and increasing infrastructure spending to secure the country’s technological and industrial leadership.
• Tariffs – tool or tactic? Tariffs may increase, particularly on imports from key U.S. trading partners, affecting U.S. manufacturing and energy sectors. Investors may want to consider the implications for industries like automotive and oil refining and prepare for potential market volatility until more explicit policy measures are established. However, we believe the tariff rhetoric may be more of a tactic for balancing trade in favor of the U.S. versus a blunt tool that could negatively impact economic growth.

2. The year of shareholder yield

We believe 2025 will be a year to focus on the emerging shareholder yield metric, which combines dividends and share buybacks. Shareholder yield took a back seat in 2024 as investors were attracted to the Magnificent 7 stocks (Nvidia, Amazon, Alphabet, Apple, Tesla, Microsoft, Meta) and anything artificial intelligence-related to try and generate outsized returns (while potentially ignoring the risks). Moreover, in 2024, investors largely ignored S&P 500 Index dividend growth of 5.6%, with buybacks nearing $1 trillion. For 2025, we expect another record year for capital returns due to strong corporate balance sheets and anticipated changes to the corporate tax rate. Despite a proposed higher buyback tax, companies are likely to continue repurchases. Furthermore, the new administration’s plans for a lower corporate tax rate could further boost dividends and buybacks. As the S&P 500 dividend yield hits a 20-year low, we believe focusing on shareholder yield, combining dividends and buybacks, will be a key metric in 2025.

3. Industries trump sectors

Investment analysts (ourselves included) spend countless hours determining how investors should allocate their equity exposure across the S&P 500 Index’s 11 broad sectors. While we believe this methodology offers diversification benefits, 2025 could be the year of the “industry,” as certain narrowly defined groups of companies may be better positioned versus larger sectors. Broadening leadership beyond a handful of mega-cap tech names could be an attractive market environment for investors to be more selective and make better tactical decisions. For 2025, we believe the med-tech (health care sector), natural gas (energy sector), capital markets (financial sector) and software (technology sector) industries offer a targeted approach, giving investors greater exposure to thematic segments of the market.

Set your portfolio up for 2025

The beginning of the year is a good time to review your portfolio’s equity allocation and consider how you may want to evolve your investment strategy to reflect recent life changes, your financial goals and the external environment. Connect with your Ameriprise financial advisor today — they can review your overall financial situation and recommend financial actions to start your year strong.