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Conducted in November, the results capture insights from more than 200 of Franklin Templeton's senior investment professionals worldwide, covering public and private equity, public and private debt, real estate, digital assets, hedge funds and secondary private market investments.

"One year ago, this survey showed lingering fears of a global recession but growing optimism that a recession should and could be avoided," said Stephen Dover, Chief Market Strategist and Head of the Franklin Templeton Institute. "Fast forward to today, our robust economy aligns with our original predictions and we are optimistic for the year ahead."

Additional Insights from the Survey's Four Focus Areas

The Economy Should Remain Robust

• We predict US real gross domestic product (GDP) forecast of 2.5%, which is higher than the 2.2% expectation of the International Monetary Fund (IMF) and 2.1% Bloomberg consensus; Europe real GDP forecast of 0.5%, which is lower than the 1.2% expectations from the IMF and the Bloomberg consensus; and China real GDP of 3.5%, which is lower than the 4.5% expectations from the IMF and Bloomberg consensus.
• Inflation, as measured by US Core Personal Consumption Expenditures (PCE), is expected to stabilize and finish 2025 around 2.75%, which is in line with the current reading of 2.8% and higher than the estimates from the Fed of 2.2% and Bloomberg consensus of 2.3%.
• We believe the unemployment rate in the US will end the year around 4.25%, in line with the current Bloomberg consensus expectation of 4.3%.

Equities: Will End the Year Positive

• The S&P 500 is anticipated to end the year higher, within the range of 6400-6800.
• We predict 7.5% earnings growth in the U.S., which is significantly lower than the market's expectation of 14.7%. U.S. earnings growth will be driven by strong real GDP growth of 2.5%.
• We favor small-cap stocks and believe both value and growth stocks will generate positive returns due to free cash flow yield, high return on invested capital, and high return on equity.
• Outside of the U.S., investors have a bullish outlook on India and Japan.
• Favored sectors include financials, technology, industrials, and energy/energy services.

Fixed Income: Shorter Duration Will Benefit

• US investment-grade spreads are expected to end 2025 at 95 basis points (bps) up from the current level of 78 bps but below the 10-year average of 122 bps.
• US high-yield spreads are expected to end 2025 at 300 bps up from a current level of 266 bps, but below the 10-year average spread of roughly 419 bps.
• High-yield default rates are expected to increase from 1.1% to around 2.5%, still much lower than the historical average of 3.4%.
• Municipal bonds continue to be a high-quality, diversifying investment option, with expected total returns of about 3.75% in 2025.

Alternatives: New Opportunities Arise

• Secondary investments offer good value due to their structural advantages for individuals and institutions.
• A significant amount of debt will mature soon, presenting an attractive opportunity for private credit managers with capital.
• The most attractive opportunity is within real estate debt as banks hesitate to lend, allowing managers to negotiate favorable terms.
• Real estate valuations dropped to more realistic levels, creating opportunities across select sectors, namely multi-family housing, industrial warehouse, life sciences, medical offices and neighborhood retail.

"Confidence continues to grow across asset classes. As we enter 2025 from a position of strength, we expect global economic growth to be stable and stronger than anticipated," added Dover. "Investors who strategically position themselves to capitalize on these economic conditions in 2025 will unlock favorable outcomes."

There is no assurance that any estimate, forecast or projection will be realized.

Franklin Resources, Inc. is a global investment management organization with subsidiaries operating as Franklin Templeton and serving clients in over 150 countries. The Franklin Templeton Institute, launched in January 2021, is an innovative hub for research and knowledge sharing that unlocks the firm's competitive advantage as a source of global market insights.

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