Bank of America has published a list of "Ten Surprises for 2025," which it says are plausible events that would have a high impact, but have not been priced in by investors. The bank adds that these are not forecasts, but contrarian possibilities.

The S&P 500 returns more than 20% for a third-straight year. This would follow a 25% gain in 2024 and 26% increase in 2023, which was only the 12th time since 1871 that U.S. equities saw back-to-back gains of more than 20%.

Tariffs work. "If 'tough love' on countries running large trade surpluses works, it could spur higher US production, support employment, boost wages, and shrink the deficit."

Deregulation unlocks Capex. The 2024 Loper Bright Supreme Court decision nullified the Chevron doctrine, and the Corner Post decision gives firms new standing to challenge regulations. These, along with the Department of Government Efficiency (DOGE), "could remove major obstacles to productive business investment."

Artificial intelligence runs out of training data. "2025 could be the year AI enthusiasm plateaus as realities set in of data scarcity, energy limitations, and overly optimistic earnings forecasts."

Bond buyers become recusants. U.S. households have bought $1.6 trillion in Treasuries since mid-2020 and seen a loss of around 30% on the intermediate and longer-dated debt, which could lead them to step away from the market. "Never mind the vigilantes, here are the bond recusants."

The eurozone breaks away from zero-debt, zero-energy policies. German elections could lead to new electoral mandates that boost military and energy investment and potentially new joint European debt issuance, "turning 'value trap' EU equities into deep value opportunities."

A stronger Japanese yen weighs on growth stocks. "The JPY reversal from >160 in July 2024 sparked a 14% selloff in the Nasdaq 100. In 2025, economic conditions are stronger, the BoJ is sober, and a stronger yen could again cause forced unwinds of carry trades; especially at the pricey top of the US market."

Demand for alternatives creates its own supply. "Demand for private funds looks insatiable" and access may expand with new ETFs that trade private credit and possible new rules that open 401k investments to the asset class. More private credit could unlock capital for middle market businesses, but also increase risks to investors from the opaque, illiquid and hard to value investments.

Someone turns off the internet. "Subsea cables are vital to modern communication and financial networks," and "some connections are hanging by a thread," BofA notes. "Cutting the wrong (or right) cable could mean 'lights out' for key digital infrastructure."

Electrical grid fragility results in $600 bln of power outages. "The US electrical grid is fragile" and "rising demand is not being matched by reliable supply." Significant power outages have become more frequent and "a few bad storms and the cumulative effects of mismanagement could cause a year of $600bn losses from grid failure," or 2% of GDP.

Source: Reuters