Back To the Future: Trump 2.0 and the 2025 Outlook

"The best way to predict your future is to create it." - Abraham Lincoln

Lincoln’s sentiment feels particularly relevant as we look at the year ahead. This captures the proactive mindset businesses and leaders must adopt to shape their outcomes amid shifting political, economic, and regulatory landscapes. While opportunities abound, success in 2025 will require careful planning, strategic adaptability, and a focus on innovation to navigate uncertainties.

The re-election of Donald Trump and a Republican-controlled Congress sets the stage for a transformative 2025. Across RBC’s recent Strategic Alternatives podcasts, several key themes have emerged, providing a roadmap for navigating the opportunities and challenges ahead.

This newsletter distills key perspectives from the Strategic Alternatives podcasts, offering actionable insights to help clients navigate the evolving landscape in 2025.

🎙️ Macro, Monetary Policy, and Rates Outlook

The Trump administration’s pro-growth fiscal policies, including tax cuts and deregulation, are expected to provide economic momentum, but the Federal Reserve’s monetary policy will play a pivotal role in shaping market conditions.

Key Expectations from RBC Strategists:

• Rate Cuts in 2025: RBC strategists project one more rate cut in the first quarter of 2025, bringing the Federal Funds Rate closer to 4% before an extended pause. We see that pause lasting through the end of 2025 as downside risks to growth and labor remain relatively low and the Fed remains vigilant of rising upside inflation risks.
• Inflation Dynamics: Fiscal stimulus and tighter immigration policies may drive structural inflationary pressures. Core inflation is expected to stabilize below 3% by late 2025, though trade policies and geopolitical risks could push it higher.
• Yield Curve and Long-Term Rates: After only recently un-inverting, we expect the yield curve to move both higher and flatter in 2025 as the market comes to terms with the shallower cutting cycle and starts to look ahead to a potential hiking cycle. The hawkish shift in Fed expectations should damper longer-run growth and inflation expectations, resulting in a smaller rise in long-term rates, including the 10-year Treasury yield, which we expect to remain above 4%. Overall, our more positive/hawkish Fed call would be consistent with an end to the steepening environment that accompanies cutting cycles and the start of the flattening environment that is the hallmark of hiking cycles.
• Global Policy Divergence:

1. Canada: The Bank of Canada is expected to cut rates aggressively, with reductions of 75-100 basis points in early 2025, reflecting weaker growth and pressures in the housing market.
2. Europe: The European Central Bank is likely to proceed cautiously with one or two small rate cuts, as Europe grapples with slower growth and energy challenges.

Lower rates in 2025 are expected to create a more constructive financing environment, supporting debt issuance, refinancing, and transaction activity, including private equity and M&A deals.

🎙️ Expectations for the U.S. Economy

The U.S. economy is well-positioned for 2025, with strong momentum driven by a pro-business policy environment, consumer resilience, and increased corporate investment.

Key Takeaways from 2024:

• Despite periods of uncertainty, the U.S. economy demonstrated remarkable stability, driven by strong corporate earnings, a healthy labor market, and resilient consumer spending.
• Fiscal policies, including infrastructure investments and energy incentives, provided growth opportunities in key sectors such as construction and industrials.

2025 Outlook and Considerations:

• Fiscal Tailwinds: Anticipated tax cuts and reduced regulatory burdens will encourage capital expenditures, particularly in manufacturing, energy, and infrastructure.
• Consumer Strength: A stable labor market and rising wages will sustain consumer spending across housing, autos, and discretionary goods. However, this strength is uneven with higher income households in substantially better positions than lower income householders.
• Corporate Confidence: Improved policy clarity will encourage businesses to pursue growth initiatives, including domestic expansion and M&A.
• Risks to Watch:

1. Trade policy uncertainties and tariffs may disrupt supply chains.
2. Labor shortages could worsen under tighter immigration policies, increasing wage pressures.
3. Consumer headwinds including growing debt burdens on lower-income consumers stemming from Buy Now Pay Later (BNPL) and student loan repayments.

This combination of optimism and challenges creates a dynamic environment for deal-making, particularly in domestically focused sectors such as construction, energy, and industrials.

🎙️ IPO and Equity Market Outlook

The IPO market, and equity market in general, has faced challenges in recent years, and is poised for a strong rebound in 2025.

Key Takeaways from 2024:

• Global ECM issuance rose to $740 billion, up 20% year-over-year, with the U.S. leading the rebound.
• U.S. IPO volumes grew 67%, driven by high-profile listings such as Lineage Logistics, StandardAero, and Waystar.
• Convertible bond issuance reached $127 billion, outpacing global IPO volumes for the first time in a decade.

2025 Outlook and Considerations:

• IPO Pipeline: With clearer political direction, stabilizing market conditions, and strong investor demand, more companies are preparing for public listings. RBC expects a more active new issue calendar in the first half of 2025.
• Investor Confidence: Stabilizing valuations and improved alignment between issuers and investors will support deal flow, though smaller transactions may remain under pressure.
• Convertible Bonds: Continued demand for flexible financing options will sustain growth in convertible issuance.
• Key Sectors: IPOs in fintech, cybersecurity, and AI infrastructure are likely to lead the charge. High-growth sectors are expected to prioritize profitability alongside scale to attract institutional interest.
• Sponsor Activity: A broad spectrum of capital market structures and solutions will drive private equity firms to creatively enhance their returns.
• Regulatory Changes: Anticipated deregulation of equity markets may reduce friction for smaller companies seeking to go public, enhancing diversity in IPO activity.
• Trade Policy Risks: A disruptive trade war could challenge global ECM sentiment, particularly in export-driven sectors.

A constructive policy backdrop and investor confidence are likely to support equity markets in 2025, particularly for issuers in growth sectors like AI and traditional energy.

🎙️ Global M&A Outlook

M&A activity in 2025 is expected to accelerate across regions, with favorable conditions in the U.S. supporting a broad spectrum of transactions.

Key Takeaways from 2024:

• M&A activity rebounded globally, supported by improving financing markets, narrowing valuation gaps, and increased private equity activity. Global announced M&A volume is over $3.4 trillion, up almost 15% year-over-year, with the U.S. over $1.8 trillion, up 11% year-over-year, representing 54% of global volume.
• Sectors like technology (AI and software integration), healthcare (innovation-focused buys), energy (large cap acquisitions), and infrastructure (government funding) led deal flow, reflecting strong thematic drivers.

2025 Outlook and Considerations:

• Strategic Consolidations: Trump’s pro-growth policies will drive M&A activity in manufacturing, energy, and industrials as companies seek operational scale and synergies. Boards and shareholders are increasingly focused on scale to manage supply chain risks, achieve operational efficiency, and secure financing in uncertain environments.
• Private Equity Momentum: PE firms are poised to lead the market, with record dry powder driving take-private deals, recapitalizations, and secondary exits. A recovering IPO market will facilitate private equity exits given the ability to dual-track with M&A alternatives.
• Cross-Border Deals: U.S. acquirers are expected to pursue Canadian and European targets, capitalizing on favorable exchange rates and financing costs.
• Sector Highlights:

1. Technology: AI, cybersecurity, and infrastructure will remain active areas for M&A.
2. Energy: Consolidation will align with Trump’s focus on fossil fuel expansion, including domestic manufacturing policies and energy infrastructure expansion.
3. Healthcare: Biotech and pharmaceuticals will see increased activity, partly driven by regulatory clarity and innovation funding, and increased strategic buyer interest.

Despite potential risks such as regulatory challenges and geopolitical instability, the easing of headwinds and favorable financing conditions are expected to drive balanced growth in 2025. Boards and sponsors are advised to focus on long-term strategic opportunities while navigating near-term uncertainties.

🎙️ Antitrust Enforcement Expectations

Under the Trump 2.0 administration, antitrust enforcement is expected to ease significantly, creating a more favorable environment for transactions:

• Deregulation Focus: Proposals like cutting ten regulations for every new one introduced signal a business-friendly approach.
• Targeted Scrutiny: Big Tech and defense contractors may still face challenges due to concerns about market dominance and national security.
• Streamlined Processes: The proposed One Agency Act could consolidate antitrust enforcement under the DOJ, reducing delays and bureaucratic conflicts.

This relaxed enforcement is likely to spur M&A activity, particularly in previously constrained industries.

🎙️ Leadership Guidance for 2025

Leadership in 2025 will be about turning change into opportunity. Navigating the opportunities and risks of 2025 will require adaptive and forward-thinking leadership defined by:

• Strategic Agility: Be prepared to pivot in response to policy changes, market volatility, and shifting geopolitical dynamics.
• Risk Management: Monitor inflation, labor shortages, and trade policies that could disrupt operations or valuations.
• Innovation and Investment: Focus on growth opportunities, especially in AI, infrastructure, and healthcare, to stay ahead of the curve.
• Stakeholder Engagement: Maintain transparent communication with stakeholders to build trust and align on long-term goals.

Conclusion

The year ahead promises robust opportunities across sectors, supported by a favorable regulatory environment, improving financing conditions, and renewed market optimism. While challenges remain, proactive planning, strategic leadership, and adaptability will be key to success.

 For deeper insights, explore RBC’s Strategic Alternatives podcast series on Apple, Spotify, or your preferred platform.