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Uncertainty around U.S. tariffs remains, but the worst-case scenario has largely been ruled out as progress toward trade deals is being made. In our base case scenario, economic growth should slow, but not stop, and any rise in inflation should prove temporary. Stocks can perform well against this backdrop if policy, earnings and investor sentiment cooperate, and bonds offer decent return potential with only moderate valuation risk.

Economy

  • Tariffs are set to exert a substantial drag on economic growth with modest 2025 GDP growth forecasts of sub-2% across the developed world. A mild 2025 slump triggered by tariffs is also expected for most emerging markets.

  • Next year should be somewhat better with the worst of the tariff adjustment complete and U.S. tax cuts acting as a tailwind.

  • Because of tariffs, U.S. annual inflation rates of 3.0% in both 2025 and 2026 are expected with a projected peak of 3.5% in late autumn.

  • U.S. exceptionalism is in retreat, with adverse implications for the dollar and the broader investment landscape.

RBC GAM GDP forecast for developed markets

RBC GAM GDP forecast for developed markets

Note: As of May 29, 2025. Source: RBC GAM

Fixed Income

  • Central banks are proceeding with caution as they weigh U.S. policy uncertainty and competing priorities of economic weakness and inflation strength calling for opposite action.

  • The U.S. 30-year yield climbed to above 5% in May 2025, the highest since late 2023, on fiscal concerns.

  • Further increases in real rates are likely limited over the long term by structural factors. As a result, the U.S. 10-year yield at 4.40% is appealing, situated slightly above the upper boundary of our model’s estimate of equilibrium.

  • We forecast that the U.S. 10-year yield will decline marginally to 4.25% over the year ahead, delivering mid-single digit returns with modest valuation risk.

U.S. 10-year T-bond yield

Equilibrium range
US 10 year T bond yield

Note: As of May 31, 2025. Source: RBC GAM

Equity Markets

  • The tariffs sparked an intense sell-off that pushed many technical and sentiment indicators to extremes and shifted leadership away from U.S. stocks.

  • Subsequent progress on trade propelled the S&P 500 back to levels which make further gains increasingly dependent on strong earnings growth and elevated investor confidence.

  • Uncertainty around U.S. trade policy has depressed S&P 500 earnings estimates, with analysts now pencilling in 8.5% aggregate profit growth in 2025 and 13.5% in 2026, down from 14% and 15%, respectively, earlier this year.

  • Our models suggest that global equities are fairly priced and offer attractive return potential, especially non-U.S. markets.

Global stock market composite

Equity market indexes relative to equilibrium
Global stock market composite

Note: As of May 30, 2025. Source: RBC GAM

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RBC GAM is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management Inc. (RBC GAM Inc.), RBC Global Asset Management (U.S.) Inc. (RBC GAM-US), RBC Global Asset Management (UK) Limited (RBC GAM-UK), and RBC Global Asset Management (Asia) Limited (RBC GAM-Asia) which are separate, but affiliated subsidiaries of RBC.


In Canada, this document is provided by RBC GAM Inc. (including PH&N Institutional) which is regulated by each provincial and territorial securities commission with which it is registered. In the United States, this document is provided by RBC GAM-US , a federally registered investment adviser. In Europe this document is provided by RBC GAM-UK, which is authorised and regulated by the UK Financial Conduct Authority. In Asia, this document is provided by RBC GAM-Asia, which is registered with the Securities and Futures Commission (SFC) in Hong Kong.


Additional information about RBC GAM may be found at www.rbcgam.com.


This document has not been reviewed by, and is not registered with any securities or other regulatory authority, and may, where appropriate and permissible, be distributed by the above-listed entities in their respective jurisdictions.


Any investment and economic outlook information contained in this document has been compiled by RBC GAM from various sources. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM, its affiliates or any other person as to its accuracy, completeness or correctness. RBC GAM and its affiliates assume no responsibility for any errors or omissions in such information.


Opinions contained herein reflect the judgment and thought leadership of RBC GAM and are subject to change at any time. Such opinions are for informational purposes only and are not intended to be investment or financial advice and should not be relied or acted upon for providing such advice. RBC GAM does not undertake any obligation or responsibility to update such opinions.


RBC GAM reserves the right at any time and without notice to change, amend or cease publication of this information.

Past performance is not indicative of future results. With all investments there is a risk of loss of all or a portion of the amount invested. Where return estimates are shown, these are provided for illustrative purposes only and should not be construed as a prediction of returns; actual returns may be higher or lower than those shown and may vary substantially, especially over shorter time periods. It is not possible to invest directly in an index.

Some of the statements contained in this document may be considered forward-looking statements which provide current expectations or forecasts of future results or events. Forward-looking statements are not guarantees of future performance or events and involve risks and uncertainties. Do not place undue reliance on these statements because actual results or events may differ materially from those described in such forward-looking statements as a result of various factors. Before making any investment decisions, we encourage you to consider all relevant factors carefully.

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© RBC Global Asset Management Inc., 2025