Vanguard economists highlight three key stock market trends for 2025 and beyond. The first trend involves tariffs, which have both immediate and long-term implications. The initial effects include accelerated imports and an inventory buildup, maintaining a lower realized effective tariff rate. However, over time, tariffs are expected to drive significant changes in the global economy, affecting regions like the European Union, China, and the U.S., and impacting economic policies and productivity.

The second trend relates to interest rates, which are expected to remain above inflation. The Federal Reserve's projections support this view, with predictions for a persistently higher neutral rate than pre-pandemic levels. Challenges such as a high U.S. fiscal deficit and demographic shifts could lead to increased inflationary pressures. If the Federal Reserve maintains its 2% inflation target, the U.S. might experience a period of higher real interest rates.

The third trend involves the growing importance of global portfolio diversification. Factors contributing to this include high valuations of U.S. stocks and the evolving role of AI technology. While AI initially benefited major tech firms, future market advantages may shift to value companies. Increased international diversification is also anticipated due to the overvaluation of U.S. equities and the dollar, making overseas investments more appealing. Overall, these trends emphasize the importance of diversification in navigating market fluctuations.