(Bloomberg) -- KKR & Co. is warning that a volatile currency market could be an “Achilles heel” for investors in 2025, as growing deficits and the threat of trade wars may disrupt a bull market that it says still has room to run.

The alternative asset manager said it’s monitoring the dollar and emerging-market currencies heading into the new year, “especially given higher leverage” and some countries’ desire “to adjust their currencies to improve their competitive positioning,” Henry McVey, KKR’s head of global macro and asset allocation, wrote in an outlook report with colleagues.

The report said there are parallels in the current cycle with the late 1990s, when “a combination of currency unwinds and excess leverage led to a short and sharp market correction that investors were underestimating.” A mix of “tariff wars and big fiscal imbalances can create volatility shocks,” the authors wrote.

The warning on the FX market fits into KKR’s “regime change” thesis, where “bigger deficits, heightened geopolitics” and “stickier US inflation” could lead to “flatter returns.”

Even so, KKR believes the “glass is still half full” in 2025, and is betting on the S&P 500 to hit 6,850 at year-end, higher than the median estimate of 6,600 by Wall Street strategists tracked by Bloomberg. That would mark a 17% gain from Wednesday’s close, compared to a 23% gain year-to-date and a 24% return in 2023.

“The bar is now higher to achieve strong absolute returns in 2025,” the authors wrote, noting that elevated valuations could limit upside for risky assets. However, they cited interest-rate cuts from central banks and expected productivity gains as reasons to be optimistic. In addition, KKR said the current rally in equities has only run for 26 months, while the average bull market lasts 5.5 years.