Asset management giant PIMCO: Benefiting from increased expectations of a soft landing, U.S. stocks still have upside potential

According to the Zhitong Finance APP, as more top investment firms express optimism about Wall Street's prospects for 2025, the asset management giant PIMCO has also joined this trend.

Despite some investors worrying that the S&P 500 index (currently trading at a price-to-earnings ratio of nearly 22 times the 2025 earnings forecast) is overvalued, PIMCO portfolio managers Erin Browne and Emmanuel Sharef believe that stocks still have upside potential, benefiting from increased expectations of a soft landing, while the bond market also remains attractive.

Browne and Sharef noted in a report released on Wednesday: "In a rate-cutting cycle, economic activity is the main driver of stock returns. If economic activity remains strong, rate cuts are expected to enhance stock valuations." They further added: "As major central banks lower interest rates, both the stock and bond markets will benefit, with high-quality core fixed-income assets particularly having good prospects."

The two PIMCO managers pointed out that while the tax cuts, fiscal stimulus, and deregulation promised by Trump during his campaign could drive economic growth, these positive factors may be partially offset by the new government's higher tariff policies. Therefore, they recommend that investors focus on U.S. companies with lower reliance on imports, as well as businesses that may benefit from deregulation and more favorable tax policies.

Other experts have also expressed optimism about these themes. Tom Hancock, a portfolio manager focused on stocks and quality at GMO, stated that the financial sector is expected to benefit from interest rate cuts and Trump's economic stimulus policies. He is particularly bullish on Wells Fargo (WFC.US) and U.S. Bancorp (USB.US).

Hancock also mentioned that although tech stocks may be hindered by Trump's trade war, there are still opportunities for tech companies like Texas Instruments (TXN.US) that benefit from localized production.

Shelby McFaddin, a senior investment research analyst at Motley Fool Asset Management, stated that Trump's focus on domestic manufacturing development is good news for the industrial sector. Her firm currently holds shares in concrete and asphalt giant CRH Cement (CRH.US), which is expected to benefit significantly from increased infrastructure investment. "Everyone agrees we need new roads and bridges."

McFaddin added that after the Republican victory, she is also looking at investment opportunities in engineering and consulting firm Jacobs Solutions.

In the bond market, the situation is somewhat more complex. Some experts point out that fiscal stimulus and tariffs could drive inflation higher, leading to an increase in long-term yields. Andrew Krei, co-chief investment officer at Crescent Grove Advisors, stated: "Yields have a tendency to rise, but we remain comfortable with extending duration." However, he also warned that large-scale fiscal stimulus could lead to volatility in the bond market, which may have a greater impact on government bonds Krei stated that he is optimistic about investment-grade and high-yield corporate bonds, believing that fiscal stimulus and a stronger economy will support the credit market.

Erik Aarts, a senior fixed income strategist at Touchstone Investments, predicts that if the economy remains resilient, inflation moderates, and fiscal and monetary policies are favorable, high-yield bonds could be the winners of 2025. He also added that high-quality municipal bonds are equally attractive.

Looking ahead to 2025, PIMCO advises investors to maintain a balanced allocation between stocks and bonds, focusing on high-certainty core trades. Brown and Sharif emphasized, "By maintaining a well-balanced portfolio, investors can achieve their goals while addressing potential surprises in the future."