Economic uncertainties, political changes and tariff tensions are expected to drive market fluctuations throughout the year
The (Union Bank of Switzerland) projects that S&P 500 volatility will be high in 2025 because of economic uncertainties, changes in monetary policies and geopolitical risks.
In a report published this Tuesday (7 January 2025), analysts stated that the period of low volatility in 2024 has come to an end.
UBS highlights that the global economy is still feeling the effects of the pandemic, but now more related to economic cycles. With the end of government stimulus, growth is expected to slow down, especially in the USA and China.
Economic differences between regions are likely to persist, and the policy of “America in 1st place” may worsen the situation.
The combination of slower growth and interest rate cuts has historically increased volatility, creating uncertainty about the economic slowdown. This could cause markets to experience spikes in volatility, especially with growth data.
Impact of tariff tensions
UBS also notes that tariff tensions could increase, creating significant redistributive effects across regions and sectors. European stocks and banks are seen as particularly vulnerable.
Volatility Projections
UBS expects the VIX index, a volatility indicator, to average 20% in 2025, up from 2024. Furthermore, the intensity of volatility is expected to remain high, with the S&P 500 having a dispersion of 110% or more.
Expectation for profits
The bank estimates that the heavy concentration of profits in large US technology companies will decrease, which could help reduce volatility.
However, if company profits fall below expectations, this could increase correlations between stocks, increasing volatility for the year.
With information from Brazil.
