Financial Associated Press, January 7 (Editor Huang Junzhi) At the beginning of the new year, investors hold a very optimistic outlook for the USA economy and stock market in 2025. However, market research firm BCA Research warns that the more optimistic investors are, the more likely the final outcome may not meet their current expectations.

In the latest report released on Monday, BCA Research stated that the risk from 'animal spirits' is spreading in the market. 'Animal spirits' refers to investors' strong optimism toward the USA stock market, as investors expect that once President-elect Trump officially takes office in the White House, both the stock market and the USA economy will become stronger.

In economic theory, the term 'animal spirits' is often used to refer to the irrational factors such as instincts, habits, and emotions that influence and guide human economic behavior.

However, according to the company, such bullish sentiment may prove detrimental to the market, as the so-called 'animal spirits' could drive up inflation and ensure that interest rates remain high for a longer period. The company stated that investors should 'bear the risk themselves.'

Moreover, extreme optimism regarding the USA economy reduces the likelihood of renewed acceleration in growth for the USA economy in 2025. BCA Research Global Asset Allocation strategist Juan Correa wrote in the report mentioned above: 'Given that asset prices reflect an extremely high level of optimism, this indicates that the investment portfolio for the next 12 months will be defensive.'

Although inflation has significantly decreased from its peak in 2022, the trend of easing inflation has reversed in recent months. According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) rose by 2.7% year-on-year in November, higher than the 2.6% increase in October.

Federal Reserve officials are monitoring the possibility of inflation becoming an issue again. According to the latest economic forecast summary released by the bank, 80% of...the Federal Open Market Committee(FOMC) members indicated that they believe there are upside risks to core inflation.

Correa added, "The enthusiasm of the financial markets and animal spirits are currently running counter to the goals of Federal Reserve Chairman Powell and President-elect Trump."

On the other hand, BCA Research also noted that interest rate expectations have begun to rise, posing another risk to the market and the economy. The Federal Reserve significantly lowered its expectations for rate cuts at the December meeting last year, expecting only two cuts of 25 basis points each. Moreover, bond yields have also been rising, with the yield on 10-year US Treasury bonds climbing to its highest level in nearly seven months last week.

Correa stated that rising US Treasury yields may indicate that investors have "accepted" the idea of long-term rates rising, and they may anticipate that the government will implement a large number of stimulus measures in the face of a continuing economic slowdown. However, this optimism towards stimulus measures is also starting to have a counterproductive effect on the economy, as high yields tighten financial conditions.

Data from Moody's shows that in December of last year, the average yield on AAA-rated corporate bonds rose to a seven-month high, reflecting the rising cost of corporate borrowing.

Finally, the labor market continues to show signs of slowing down. Data from the Labor Department indicates that the hiring rate in October was 3.3%, the lowest level in four years.

"In our view, this optimism is unfounded. There is evidence that the current level of yields is dragging down economic activity," the report stated.

Overall, BCA Research has the most pessimistic forecast for US stocks in 2025. In a previous report, the company stated that it still views an economic recession as the base case and expects the S&P 500 Index to close at 4,452 points by the end of the year, down about 25% from current levels.

编辑/jayden