2025 U.S. Equity Outlook
Fourth Quarter
Key Takeaways
Growth Stocks: Playing the long game means focusing on companies we believe have solid long-term growth prospects and are better situated to ride out near-term uncertainty.
Value Stocks: In an unpredictable year, investors may find opportunities in non-U.S. stocks, which are outperforming U.S. stocks for the first time in years.
Growth Stocks
Focused on Enduring Opportunities
Investing isn’t an exact science. The future can’t be predicted with any certainty, and stocks can go up or down in the short term for any number of reasons. This makes investing a game of probabilities. So, skill and consistency in applying your investment strategy over the long run should outweigh short-term “luck” or market noise.
Think of it like baseball. San Diego Padres Hall of Famer Tony Gwynn consistently hit for a very high batting average. He would rank among the league leaders at the end of each season. But he might go hitless in any game or series of games.
Did Gwynn stop being an excellent hitter? No. His approach didn’t change, but circumstances or “luck” can overwhelm skill in the short run.
Strategic Planning vs. Market Speculation
Bringing it back to investing, we build our financial models through painstaking analysis and much thought about the variables that affect a company’s fair value over time. Our philosophy and process are based on using fundamental research in an effort to identify attractive, long-duration growth investments.
As an investor, time horizon matters greatly, and sticking to your long-term saving and investing plan beats reacting to short-term noise. That’s why our motto is “Win by playing the long game.”
We believe this is how you should view today’s market. The pace and size of the Federal Reserve’s (Fed’s) rate cuts in the near term aren’t the variables that will determine your long-term investing success.
Instead, the most important thing you can do is develop a financial plan consistent with your needs, risk tolerances and time horizon. Then, you need to stick to it.
Rate Cuts vs. Inflation: The Fed’s Balancing Act
The market appears to be betting on the Fed making a series of aggressive moves. While these expectations are reasonable, it’s important to remember the central bank has a dual mandate of maintaining full employment and price stability. These two goals appear to be at odds with each other.
The unemployment rate has ticked up slightly to 4.3%. In June, the economy experienced its first net job losses in a month since December 2020. These signs of weakness in the labor market led to the conclusion that rate cuts are imminent.
At the same time, the most recent data shows inflation above the Fed’s stated 2% target. Core consumer prices, which exclude volatile food and energy prices, rose 3.1% for the 12 months ending in August. What’s more, producer prices jumped sharply.
Wages have also been rising faster than inflation. Perhaps this can be explained by the sharp crackdown on immigrant labor, which argues for worker scarcity and higher wages ahead, all else equal.
Just as crucial as the reported inflation data, inflation expectations have surged. The widely watched University of Michigan inflation expectations measure recently showed that investors think inflation will average 4.9% and 3.9% over the next one- and five-year periods, respectively. That’s important because inflation expectations can become a self-fulfilling prophecy.
Impact of Rate Cuts on U.S. Equities
All this matters for stocks because their prices reflect expectations about future earnings. Financial professionals estimate today's value of those future earnings based on a calculation that's influenced by interest rates.
When interest rates are lower, future earnings become more valuable in today’s terms — this helps explain why markets pay close attention to the Fed’s rate decisions.
Lower rates tend to boost stock prices, especially for growth-oriented companies, whose expected profits are often many years away. These companies are more sensitive to changes in interest rates because their value depends heavily on those future earnings.
Even without the math, there’s a common-sense reason why rates matter: Lower interest rates reduce borrowing costs, which encourages spending and investment, helping the economy — and often the stock market — grow.
Analyzing Earnings Growth in 2025
One positive for equities is that corporate earnings estimates rose meaningfully coming out of the most recent earnings season. So much so that expectations are now arguably aggressive. Of course, the market has also appreciated meaningfully since the “Liberation Day” sell-off.
The result is that market valuations are high by historical standards even after allowing for stronger earnings estimates. Growth stocks are also rich relative to value, but nowhere near extremes relative to history.
Patience Is an Investing Virtue
We believe companies with solid long-term growth prospects are better situated to ride out near-term uncertainty. We believe our own portfolio investments are positioned to enjoy these long-term fundamental growth opportunities.
Similarly, we think investors who exercise patience and remain focused on their long-term savings and investment objectives while disregarding short-term market fluctuations tend to be better positioned.
Value Stocks
A Change in Leadership: Non-U.S. Stocks Outperforming in 2025
It’s been a strange year for investors.
In 2025, markets have had to make sense of a confounding and fluid U.S. tariff policy. Investors have also had to interpret the implications of an astonishing stock market rally that started shortly after many of these tariffs were paused.
Another unusual aspect of today’s market environment: Non-U.S. stocks are outperforming U.S. stocks by a healthy clip. Through August 31, non-U.S. stocks, as measured by the MSCI AC World ex-U.S. Index, have gained 22.69%, compared to 10.79% for U.S. stocks in the S&P 500® Index.1
That’s a marked contrast from U.S. stocks soaring 85% from the start of 2020 through the end of 2024, while non-U.S. stocks advanced a lackluster 8% over that same span.
One major reason non-U.S. stocks are outperforming U.S. stocks is the weakening of the U.S. dollar. This year, the dollar index has fallen by 10% as of August 29, marking its worst performance since the U.S. left the gold standard in 1971.
Several factors have led to the dollar’s decline. These include unpredictable U.S. trade policies, slowing economic growth, and increasing concerns about the country’s fiscal health.
As a result, some investors are reevaluating their exposure to U.S. assets and seeking opportunities elsewhere. Many are finding that non-U.S. equities have stronger fundamentals and are trading at attractive valuations.
Policy and Improving Businesses Support the Non-U.S. Advance
There are also structural changes occurring overseas that could continue to benefit non-U.S. equities. For instance, European countries are increasing defense spending and adopting more flexible fiscal policies. Some have cut costs by implementing layoffs — a notable shift given the continent’s labor laws that have traditionally favored workers.
Central banks outside the U.S. and Japan are starting to cut interest rates, while the Federal Reserve remains on hold. Some markets stand out more than others. Take South Korea: For years, the nation’s economy struggled with corporate structures that discouraged minority investors, keeping stock valuations low — a phenomenon known as the “Korea discount.”
South Korea’s new “value up program,” adopted in 2024, aims to boost corporate transparency and improve shareholder rights. While participation is voluntary, political and social pressures are encouraging companies to get on board.
Other countries whose economies have stagnated may be positioned for longer-term growth. For instance, Germany is launching an ambitious stimulus program focused on military, infrastructure and climate projects.
Although stimulus impacts haven’t yet appeared in corporate earnings — and likely won’t until 2026 — history indicates that periods of outperformance by either non-U.S. and U.S. equities can last for years. This year could be the early days of a new era — however long — in which non-U.S. stocks carry the torch.
Rising M&A Momentum in U.S. Markets
Under the Biden administration, deal activity was subdued due to inflation, high interest rates, an uncertain economy, and a Justice Department and Federal Trade Commission that adopted a tough stance on corporate tie-ups.
This year began with high hopes that mergers and acquisitions would pick up because many expected a second Trump presidency to take a more relaxed approach to M&A deals.
However, for much of 2025, deal activity hasn’t been significantly different from 2024 and 2023. Volatility in the market, triggered by the surprising and unpredictable U.S. tariff policies first announced in April, has diminished confidence in dealmaking.
Despite this challenging landscape, there are signs that deals may be picking up as we move into the latter part of the year. As Figure 1 shows, aggregate deal value is starting to rise, even if deal volumes aren’t.
Figure 1 | M&A Activity Steady, but Deal Volume Climbs
U.S. Mergers & Acquisitions Market Index
Data from 4/1/2024 – 7/31/2025. Source: FactSet.
This is driven by recently announced deals, such as Union Pacific agreeing to buy Norfolk Southern for $72 billion in July. If the deal goes through, it would create the U.S.’s first transcontinental railroad.2 Trump administration officials have suggested that regulators may not get in the way.
Other substantial deals include Waters Corp. agreeing to buy medical device company Becton Dickinson’s life sciences division for $10.3 billion and oilfield services firm Baker Hughes planning to buy Chart Industries for $9.5 billion.
Other deals haven’t yet materialized but may do so later. Northern Trust is said to be a potential takeover target. Kenvue is examining strategic options after a private fund, TOMS Capital, acquired a stake and urged management to consider selling or splitting the personal care products company.
We think these deals and others point to pent-up demand among corporate leaders to strike deals and more confidence in the economy's resiliency.
Despite the volatility earlier this year, it also indicates that the economy has held up fairly well, and firms have rationalized tariff policies to some extent, putting them in a better position to proceed with their business plans.
¹FactSet.
²Kiel Porter, “Lutnick Signals Openness to Union Pacific-Norfolk Southern Deal,” Bloomberg Law, August 19, 2025.
Explore Our Global Growth and Global Value Capabilities
References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.
International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
Historically, small- and/or mid-cap stocks have been more volatile than the stock of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.
Diversification does not assure a profit nor does it protect against loss of principal.
Generally, as interest rates rise, bond prices fall. The opposite is true when interest rates decline.
Past performance is no guarantee of future results. Investment returns will fluctuate and it is possible to lose money.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.