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Friday 14 March 2025
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March 2025 | Recent market activity has been marked by increased volatility. In the US, this has been mainly driven by growing concerns about the trajectory of the US economy, particularly in light of the erratic statements from President Trump with regard to tariffs. Additionally, the latest economic data has been disappointing. Consequently, the market's expectations for US growth for the current year have been revised downwards. With near-term inflation still well above the Fed’s target and consumer expectations of rising inflation (primarily a function of tariffs), the Fed will likely be forced to hold rates higher for longer to ensure that inflation expectations stay anchored. But, through the course of this year, we believe it will be able to reduce interest rates.
01 | Rising uncertainty regarding Trump’s policies, particularly the economic impact of tariffs, has increased in recent weeks, leading to further weakening in US equities.
02 | The US economy is slowing more rapidly than expected, as companies have been frontloading imports to discount higher tariffs, and policy uncertainty has dented consumer confidence.
03 | We believe the correction in areas of excessive valuations in the US equity market may continue, leading to a continuation of the recent rotation in favor of Europe and China. In bonds, we believe an active duration approach is key.
Important Information
Unless otherwise stated, all information contained in this document is from Amundi Asset Management as of March 11, 2025. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product or service. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not indicative of future results. Amundi US is the US business of Amundi Asset Management.
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Unlike the US Treasury curve, the tax-exempt curve remains significantly positively sloped, leading to elevated yields in core and longer-duration municipal strategies. The high yield municipal market, in our view, displays a potential opportunity to provide not only tax-efficient dividends, but also pockets of price appreciation found in select sectors and security themes. In general, we expect credit stability in 2025, with potential policy shifts creating both credit negatives and positives. Some of these policy impacts may be felt in port issuers: broadly applied tariffs could impact bottom lines; hands-off energy policy could benefit traditional energy-producing local agencies and states; and Medicaid and Medicare reimbursement eligibility rate shifts could negatively impact smaller regional health care systems.
Given the tensions that brought down the last German government, which was a three-party coalition, preference will be given to a two-party coalition to limit the amount of compromise necessary. The most likely coalition is between the CDU/CSU and the SPD. The German economy, which was in recession for the second year running in 2024, is the weakest economy in the eurozone. Tightening financial conditions, rising energy prices and weakening foreign demand (particularly from China) explain the poor economic performance. Uncertainty over tariffs has been weighing on confidence and domestic demand since the start of the year.
Although full year 2024 returns for High Yield were strong and spreads tightened during the fourth quarter, fourth quarter returns were weak with losses in both October and December due to yield curve headwinds. While defaults have moderated over the last few months, Moody’s recently increased its year-end global speculative grade default by issuer forecast to 4.6% on weaker US employment. Moody’s also projects the global default rate by issuer count to decline steadily across 2025, reaching 2.7% by next November.
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