Given the significant stock rallies in 2024, I trust some of are leaving the year pleased while others are feeling that they’ve missed the rallies and that everything seems a bit expensive now. For those who’re deeply invested, we know markets don’t appreciate complacency; and if you sat out on the big rallies of 2024, remember no one, not even Buffet, gets to be in on all rallies all the time. The good thing with investing is that the door is always open, and there’s still time to pick your winners for 2025.
An Overview
Before we go into specifics, I’d like to take a moment to call out some environmental factors that are top of mind for most of us. With Trump expected to be in office in January 2025 and have substantial control over both the House and Senate, we appreciate he’ll have significant influence, and themes such as tariff, trade barriers, and deregulation will continue to linger into the coming year. Also, with the FED signalling a slowdown in interest rate cuts, we expect interest rates in the US to gradually move towards 3% for 2026. Also, despite huge rallies in the magnificent seven stocks in 2024, we’ve seen that some of them have failed to maintain the same momentum in the second half of the year. Another factor to bear in mind is that fewer people are investing in the UK market, which is something we can explore in another future article.
Considering this backdrop, these are the top five themes that have caught my eye.
1. Bull Market Momentum to Continue
This is the simplest theme of all – more of the same, or similar.
Bull markets usually continue for five years, and we’ve had a few of them since the 1950s. The current US bull market is in its second year and if we believe that earnings will continue to expand as forecast, it’s logical to expect that the bull will continue to run.
If that’s your view, you may want to continue to stay focussed on US large-cap stocks such as the magnificent seven, with variations depending upon your risk appetite.
For example, you may wish you narrow your focus on specific US large-caps such as Nvidia and Tesla, or broaden this theme and include U.S. mid-cap, U.S. small-cap, potentially even other developed markets.
2. The Rebound for Banks
Another popular debate is to understand what Trump means for banks and banking.
Given Paul Atkins is Donald Trump’s choice to lead the US Securities and Exchange Commission (SEC), the sentiment is upbeat for crypto firms, hedge funds, deregulation and mergers and acquisitions (M&A) activity in the US banking ecosystem.
For context, the US has a population of c.300 million people and about 5,000 banks. The UK, by comparison, has just 350 banks serving its 70 million people.
All in all, deal making in this sector is likely to go up. Also given the above factors, corporate earnings are also expected to rise above the US average.
3. Artificial Intelligence Ecosystem
No piece on investing would be complete without speaking of the AI boom, and in particular, its poster child, Nvidia. As of my writing this, Nvidia is showing a year to date (YtD) return of 176.74% and a three year total return of 343.50%.
Yet, despite it being the best performing stock in the magnificent seven, with a Price to Earnings Ratio (PE Ratio) of 54.91, and a valuation of $3.36 trillion dollars at the time of writing, some people worry how much further can it go.
I think this is where the long game comes in, because the AI rally is only just getting started and there’ll be others to benefit from this boom, including data centres, software, hardware, power firms. Also data centres use up a lot of electricity and so you can look up electricity, and other alternative energy sources, such as natural gas and nuclear energy.
4. Increase in Defence Spend
As geo-political tensions, wars and conflicts have dominated, it’s natural to expect an increased defence spend for nations impacted directly or indirectly.
The US currently spends about 3.5% of its GDP on defence. But don’t let that number fool you because in absolute numbers, this equates to $916 billion in 2023, which is 40% of all global military spending and more than the next 10 countries combined.
Also, as Trump prepares for office, it’s widely reported that he wants renewed focus on military modernisation, an Iron Dome Missile Defence Shield and that all NATO member states should boost their defence spending to five percent of their GDP.
From an investment viewpoint, the sub-themes here include readiness against cyber threats, more advanced missile defence systems, naval readiness and any other modern technologies and combinations thereof.
5. Small to Mid-Cap US and UK Stocks
According to Motley Fool, in the past 12 months, despite all the focus on US large-cap firms, several small US companies have continued to soar, and the Russell 2000 has grown by 29% in 2023. In the UK too, the FTSE-250 has risen by 12.5%. All of this gives rise to the alternative theme to focus on the correct small to mid-cap stocks across a diverse set of industries such as finance, information services, technology, consumer discretionary, health sector, and so on.
Conclusion
The above theses gives a broad view of what I’d expect in 2025 and hopefully provides you with some credible starting points to explore as you shape your own investment strategy for the year ahead. Please bear in mind that I’m not an investment advisor and not qualified to give advice. The above is part of my own research which I use to inform my own investment decisions. I wish you the best for 2025.
About Me
I’m here to build MY BEST LIFE, and as I navigate countless decisions in this quest, I want to help you create YOUR BEST LIFE.
The bad news? It takes effort. The good news? It takes less effort than living a mundane existence, tiding through circulatory repetitive conversations about matters that don’t matter, always wondering what’s the point of this, that, and everything else? Where does it lead to? Where does it end? Why bother? Sadly, many of us seem clueless about matters beyond our next annual objective, the next bonus or the next payrise.
As a writer, speaker and coach, I help you create YOUR BEST LIFE by mastering your mind, money, and life. Get in touch for one-on-one time, and subscribe to my newsletter so you never miss an article.
Besides all the above, I’m also a senior leader in the financial services industry with over 25 years of corporate experience across four industries and four countries and have held senior leadership roles in prestigious firms such as The Oberoi Hotels, WNS, HSBC, Barclays, BSkyB and NatWest.
