US market outlook revised with lower GDP growth, higher inflation forecasts, and potential recession risk

From Morningstar: 2025-04-10 04:36:00

The 2Q 2025 US Market Outlook revealed a 12% plunge in the Morningstar US Market Index since March 24. Tariffs announced by Trump led to changes in GDP forecasts, with a 40-50% chance of recession. Inflation forecasts were also raised. Valuations suggest moving into an overweight position in equities cautiously with a focus on value stocks.

The Morningstar US Equity Research team adjusted GDP forecasts and inflation projections due to higher tariffs. Economic growth expectations were lowered for 2025-2027, with a 40-50% chance of a recession this year. Inflation forecasts were increased for the same period. Economic activity is expected to slow throughout 2025 due to the impact of tariffs.

Investors are advised to adjust their portfolios based on sector valuations. Small-cap stocks are undervalued but may take time to recover. Sectors like technology and energy offer value opportunities. Stock selection should focus on companies with economic moats, strong balance sheets, and low impact from tariffs. Maintaining a long-duration fixed-income profile is recommended.

With sectors like communications undervalued and technology presenting opportunities, investors should look for stocks with wide economic moats, attractive dividend yields, and defensive characteristics. The impact of tariffs and economic uncertainties should guide stock selection. Maintaining a balanced portfolio with a mix of undervalued sectors is crucial during market volatility.



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