A Glimpse at the Current Economic Landscape
Voya's Retirement Funds Quarterly Insights for Q1 2025
Variable products and retirement programs might find enticing opportunities in the following investment space:
Strategic Perspective
These investment choices are exclusively tiered within variable products and retirement packages.
Pivotal Points
- The U.S. stock market, due to policy turmoil and AI spending uncertainties, took a hit. Internationally, the scene brightened, particularly in Europe and China, driven by economic growth.
American Stock Market
- Value and Performance: As of late April 2025, the U.S. stock market is valued at around an 8% discount compared to fair value. This recovery comes after a steeper discount caused by tariff announcements and their subsequent rebounds[1]. Following the market turbulence in April, major indexes have recouped most of their losses due to policy shocks[4].
- Earnings Growth: Estimated earnings growth for 2025 stands at 5% for Q2, 7.2% for Q3, and 6.2% for Q4, bolstering an optimistic outlook for the year[2].
- Market Dominance: U.S. stocks have underperformed certain international markets lately, with the S&P 500 witnessing a minor decline in market cap from December 2024 to April 2025. However, select large-cap tech companies ("Magnificent Seven") have seen sharper declines[5].
- Policy Rollercoaster: Ever-evolving U.S. policies, primarily tariffs and negotiations, have played a role in market volatility. Investors seem increasingly capable of enduring such uncertainties, adopting a long-term approach[4].
International Equities: Europe & China
- European Outlook: The European equity market boasts a more promising forecast, influenced by stable economic and earnings projections, enticing valuations, and potential for emerging growth narratives[4]. Policy certainty and a weaker U.S. dollar have made European assets more appealing.
- China's Mood Swings: China's investment climate is mixed yet gaining optimism, with emerging markets witnessing increased confidence, in part attributed to their perceived value and potential policy support[4]. While geopolitical and policy risks persist, there's potential for moderate growth.
- Global Adjustments: The underperformance of U.S. stocks and favorable conditions abroad prompt investors to reevaluate and expand their international equity allocations as a hedge against U.S.-focused risks[4].
AI Investments
- Corporate Budgets: AI expenditure remains on the rise across major U.S. and international corporations, especially in the technology sector. This trend contributes to earnings growth for tech-oriented firms, driving innovation and productivity[6].
- Capital Currents: While direct market indices might not explicitly track AI spending, the performance of large-cap tech and AI-focused companies (such as the "Magnificent Seven") is closely connected to AI investments. Their fortunes can shape broader market sentiment and retirement portfolio allocations[3].
- Politics and Regulation: Uncertainties regarding AI regulation and government policy could impact future spending and market valuations, introducing additional risks for retirement planning.
Linking it Together
- The policies, particularly U.S. trade, fiscal, and regulatory policies, have heightened volatility and prompted some investors to pursue international diversification[4]. As a result, asset allocations within retirement programs may shift, possibly increasing exposure to European and emerging market equities[7].
- Given the turbulent, policy-driven market conditions, retirement programs need to adapt and remain mindful of market instability, potential growth areas like AI, and diversification strategies[8].
- As U.S. markets rebound from deeper discounts, certain analysts suggest a market-weight stance in retirement portfolios, signaling a cautious but not overly bearish outlook[1].
In the current economic landscape, artificial intelligence investments present a significant growth opportunity, particularly within the technology sector, for both U.S. and international corporations. This could potentially influence the stock-market performance of large-cap tech companies, affecting retirement portfolios.
Given the uncertainty surrounding U.S. policies and the resulting market volatility, retirement programs might consider diversifying their assets, especially by increasing exposure to European and emerging market equities.
While managing retirement investments, it's essential to remain adaptive and mindful of key factors such as market instability, potential growth areas like AI, and diversification strategies to ensure a long-term, stable financial outcome.
