What’s next for US investors?

President-elect Donald Trump returns to the White House this month as investors debate whether US stock markets are on course for another bumper year. The S&P 500 enjoyed a terrific 2024 as the so-called Magnificent Seven technology stocks helped the index return an impressive 25.5%*. This was significantly higher than the 5.6% returned by the FTSE All-Share and the -0.35% achieved by the MSCI Europe ex UK index*.

But are we due a repeat performance in 2025? Will the prevailing economic backdrop enable another 12 months of growth or will life be slightly more challenging?

Setting the scene: US economic backdrop

According to the US Bureau of Labor Statistics, more than 250,000 new jobs were created in December, while the unemployment rate was 4.1%**. In late December 2024, the US Federal Reserve also cut interest rates for the third time in a row, although chair Jerome Powell warned he expected fewer reductions over the coming year.

The Fed has lowered the target range for the federal funds rate by 1/4 percentage point to 4.25%*** and highlighted how economic activity had continued to expand at a solid pace. “Since earlier in the year, labour market conditions have generally eased, and the unemployment rate has moved up but remains low,” it stated. “Inflation has made progress toward the Committee’s 2% objective but remains somewhat elevated.”

Looking forward, a lot depends on what happens under the incoming Trump administration and only time will tell how this plays out. However, stock market indices are set to increase, along with consumer price inflation. The ‘Chief Economists Outlook’ from the World Economic Forum predicts that public debt levels were likely to increase, tax rates would fall, and there was a decent chance that wage levels would also rise****.

Outlook for US markets

Hugh Grieves and Alex Knox, the co-managers of the Premier Miton US Opportunities fund, feel confident in the health of the US economy. “With inflation and now interest rates both falling, the macro backdrop appears more constructive,” they wrote. They also believe that lower interest rates will provide a boost to both the housing and manufacturing sectors over the coming months.

The US market is attracting the attention of investors drawn to the prospects of lower corporate tax and less regulation. However, “there is uncertainty over the nature of the tariffs that have been promised by the Trump administration and their impact on US companies, inflation and the overall economy,” according to Aubrey Capital Management.

Maximilian McKechnie, global market strategist at JPMorgan Asset Management, believes investors should question whether the same drivers of performance will remain in play. “Our view is that the US will likely continue to outperform, but that the AI story will start to broaden, and opportunities extend beyond mega-cap tech,” he wrote.

Read more about the opportunities beyond technology

The continued popularity of US equities

Of course, the US market is more than just technology stocks. Investing in the US provides an opportunity to access some of the best companies in a wide variety of sectors. This has helped make IA North America the third most popular sector with UK investors. There is currently £109.7 billion invested in this area, with £23.3 billion of net inflows having been received over the previous year^. Only IA Global, with £221.7 billion, and UK All Companies, with £138.3 billion, have more funds under management^.

Five funds to consider

Let’s kick off with T. Rowe Price US Large Cap Growth Equity. This fund looks to invest in large US firms that demonstrate innovation and change. We like the fact it has a very high conviction in its top 10 names. These include Apple, Microsoft, Nvidia, MasterCard and UnitedHealth Group^^.

The second contender is Brown Advisory US Flexible Equity. We believe this is a strong candidate for anyone looking for a core US equity fund. The fund, which aims to achieve capital growth, has a flexible approach that enables it to scour the market for attractive, undervalued shares.

The next fund on our list is JPM US Equity Income. This is a core equity income holding, with its managers keeping an astute eye on risk management. Its conservative approach, which focuses on finding high quality, attractively-valued stocks, enables UK investors to access the growth potential of the US market.

Then there’s Comgest Growth America. This is a concentrated portfolio of 25-30 high quality companies that have long-term growth prospects. We like the employee-owned collegiate partnership culture of Comgest and the fact it has a flat hierarchy in which the portfolio managers also serve as analysts.

Elsewhere, the Premier Miton US Opportunities fund has a greater emphasis on medium-sized companies than many of its peers. This means there will be fewer household names in the mix. For example, its largest stock positions include Raymond James Financial with a 3.8% share of assets under management, followed by Live Nation Entertainment and Graphic Packaging Holdings^^.

*Source: FE Analytics, total returns in pounds sterling, 2024 calendar year

**Source: US Bureau of Labor Statistics, 10 January 2025

***Source: Federal Reserve, 18 December 2024

****Source: World Economic Forum, Chief Economists Outlook, January 2025

^Source: Investment Association, November 2024

^^Source: fund factsheet, 30 November 2024