Investors might have reasons to feel optimistic given the vibrant bull market, the pro-business promises by the Trump administration, and the Federal Reserve’s seemingly successful navigation of economic hurdles. However, the mood among Wall Street’s giants isn’t entirely optimistic looking towards the next year. Gathered at a prominent alternative investments conference in Miami, hedge fund leaders and industry experts adopted a wary stance on high market valuations and the potentially negative effects of Trump’s protectionist policies.
Steve Cohen from Point72 highlighted concerns that tariffs and strict immigration measures could trigger inflation and affect consumer spending. As the owner of a family office and the Mets, Cohen warns that the market might face turbulence, especially in the latter half of the year. “The backdrop doesn’t look great for 2025,” Cohen remarked during the iConnections Global Alts conference, also known as Hedge Fund Week. “I anticipate the markets might hit a peak soon if they haven’t already, and the second half could be more challenging.”
While the S&P 500 has enjoyed over 20% annual growth for the second year running, and a 53% increase over two years—comparable to the impressive gains of 1997 and 1998—it has risen by only 3% this year. Investors were recently shaken by sudden volatility, fueled by an AI competitor from China sparking a massive sell-off in Nvidia and other major tech stocks.
Karen Karniol-Tambour from Bridgewater, serving as co-chief investment officer, maintains a neutral outlook on the markets. This stems from the complexity of experiencing both stronger-than-expected growth and inflation. “Now isn’t the ideal time to take on excessive risk,” she commented. “Given the potential for high growth and inflation, one policy change could radically shift the macro environment due to existing uncertainties.” As part of her role in managing the largest hedge fund globally, Karniol-Tambour sees rebuilding fixed-income allocations as the prime opportunity in current public markets.
Howard Marks, the co-founder of Oaktree Capital, who’s vigilant about potential market bubbles, reflected on the Nvidia turmoil as a clear indicator of the short-term unpredictability and psychological sway of markets. A seasoned value investor recognized for predicting the dot-com bubble, Marks suggests high-yield credit could be a more attractive alternative to stocks, considering the limited returns many strategists expect from the broader market this year. “If the S&P 500 only promises low single-digit returns with high uncertainty, while high-yield bonds offer 7.3% contractually, isn’t that better?” Marks proposed. He recommends investors reassess their portfolios to ensure their holdings are based on solid and promising fundamentals.
