Challenges and Opportunities: Can 2025 Still Be a Strong Year for Broker-Dealers?
- Editorial Staff
- 1 day ago
- 4 min read
While the economic outlook for 2025 has become increasingly clouded amid geopolitical uncertainty, there are still indications that the investment landscape can remain prosperous for broker-dealers.
2025 is shaping up to be a year of uncertainty as Donald Trump’s return to the White House has brought unexpected policy shifts and the prospect of global trade wars resulting from sharp tariff hikes.
However, the age of Trump 2.0 also appears to come with plenty of optimism for the investment landscape as deregulation on Wall Street promises to empower more broker-dealers to capitalize on fresh opportunities.
Returns for the S&P 500 have topped 25% for the past two years in a row and have prompted more concerns over the accuracy of stock valuations, particularly in the tech sector in the wake of an artificial intelligence boom that’s seen the Magnificent Seven companies consisting of Apple, Amazon, Meta, Nvidia, Microsoft, Alphabet, and Tesla rally to extraordinary highs in recent years.
Today, much of the furore surrounding tech stocks has shown signs of strain. Trade uncertainty and growing competition from Chinese innovators have caused more investors to become wary of the tech-heavy S&P 500, which ended the first quarter of 2025 4.37% lower than at the beginning of the year.
Worryingly, Goldman Sachs has lowered its forecasts for the S&P 500 in 2025 to 6,200, representing a drop from its initial projection of 6,500.
So, could broker-dealers become caught up in the negative sentiment surrounding the United States’ investment landscape? Or could Trump’s first year back in the White House offer plenty of opportunities to institutions over the months ahead?
Finding Opportunities in Deregulation
According to George Lagarias, chief economist at Forvis Mazars, President Trump’s commitment to creating a deregulatory landscape throughout Wall Street will bring a variety of benefits for institutions.
Notably, deregulation can often benefit asset owners, such as those holding equities, real estate, or commodities like gold, because these assets generally gain value during periods of credit expansion.
Because deregulation expands credit availability, broker-dealers can benefit from long-term upturns in investor sentiment and improved market liquidity. However, Lagarias also notes that there can be some risks associated with deregulation, such as the dangers of an emerging credit bubble and greater exposure to financial shocks.
Despite this, Dan Nuckles, research analyst at Franklin Templeton, believes that deregulation will improve regulatory clarity with less duplicative enforcement for institutions on Wall Street.
Crucially, Nuckles notes that a deregulatory landscape can lower compliance costs and support the lending capabilities of central banks in a way that can generate cash and drive earnings higher throughout the economy.
Dangers Still Lurk
One of the biggest challenges to broker-dealers in 2025 will be the prospect of trade wars stemming from the imposition of tariffs and retaliatory restrictions put into place by affected nations.
While an effective hedge to this could be found in domestic manufacturing, a far-reaching trade war can harm sentiment on Wall Street as a whole.
Worryingly, this negative sentiment off the back of tariff threats appears to be severely impacting spending confidence across the board.
According to the University of Michigan’s Consumer Sentiment Index, confidence has dropped to 57.9, its lowest level since 2022.
Given that consumers are less likely to spend as trade uncertainty impacts markets, we could see weaker sentiment among institutional investors and lower rates of growth among consumer-facing industries.
Navigating a Low-Growth Environment
With optimism in the US and global economy weaker amid fears over trade wars, forecasts from the Federal Reserve have been revised down to forecast GDP growth at 1.7% in 2025, representing a significant drop from earlier projections of 2.1%.
To add to these concerns, JPMorgan economists have pushed up the likelihood of a US recession to 40% as a result of Trump’s trade policies.
Because higher tariffs are invariably linked to weaker GDP, broker-dealers will have to contend with weaker markets and a lower growth environment should a full-scale trade war emerge across former trading partners.
Uncertain economic climates can often present institutional traders with plenty of opportunities to discover undervalued assets, and we may see more hedge funds outperform their benchmarks by working harder to take advantage of market volatility.
If domestic markets remain volatile, we’re likely to see more broker-dealers turn to prime services that offer a global outlook and responsive services to supplement emerging trends and client demands.
Weaker growth doesn’t mean that all Wall Street players have to struggle with fewer market opportunities, and for many institutional investors, a little more volatility can be ideal for twisting when the rest of the market is sticking.
The Year of Cautious Optimism
We’re only a matter of weeks into the age of Trump 2.0, and there are plenty of twists and turns to the President’s trade policy on the horizon. For institutions, there are still plenty of reasons to retain a cautiously optimistic outlook.
Market volatility and uncertainty have long helped institutional players to outperform investors in identifying fleeting opportunities in trading. For broker-dealers, empowering more institutions to take advantage of nuanced trading and emerging global trends will be key in 2025.
The prospect of deregulation will still be a major draw for investors on Wall Street over the year ahead, and navigating the complex tariff landscape will be key to growth in the coming months. For broker-dealers, the aim of the game will be to facilitate trades at a moment’s notice. There will still be plenty of opportunities in 2025, but if you blink, you may miss them.
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