The Year Ahead

3rd Jan by Megan Boxall

14 comments 1776 reads

Happy New Year and welcome to the first edition of the Week Ahead for 2025.

As it’s still pretty quiet on the company reporting front next week I am using this article to be a bit more ambitious with my look ahead. Rather than just a week, this article will contain some of my thoughts about the outlook for the global stock markets in 2025.

Join the conversation in the comments.

US markets to continue to grow

The US markets remained the envy of the world’s investors in 2024.

The S&P 500 climbed 24%, driven by the continued demand for AI shares and the ‘Magnificent 7’. The latter rose by a collective 63% last year, with NVIDIA (NSQ:NVDA) leading the way, up 178%. Together these seven super-stocks are now worth $17.5trn - that’s equivalent to 40% of the S&P 500. AD_4nXenX1CjayZf4zhsZt2P_eYj8YkDp2-GQ23EVSspip1IqbfEXYupEWbJkKGPCb2ULn2upZwWN8bUeMO4n1qeGX7Z3iPAX9PUWXcALCFtBb2q-sEFMSf3aNeoLYPWLNwQjOMb1VPZqQ?key=ke6BnSliy2H7_quhykA9BZ75

AD_4nXfgr3b77mgVEYjuyz268wy6SonWwIW7Z1x7EDLDpKxebLKok3sRrdk9CJAWGinm9UP7E9TzMiTGLvqYzbiAp_98L4dtcNBr7BqjbZ9CDIKgQ676CvmbvAW7NyRwwty_9BlhY5hZvw?key=ke6BnSliy2H7_quhykA9BZ75

These stocks now also have mega-valuations, trading on an average of 48 times forecast earnings - a level which for many risk-averse Brits leaves an uncomfortable taste. But I am with the fund managers like famed US short seller Carson Block who recently told Bloomberg TV, “just close your eyes and buy probably Magnificent 7”.

The trends which drove these stocks (and the market as a whole) higher in 2024 look set to persist in 2025. Firstly, artificial intelligence, which really is a market still in its infancy. In November, the chief executive at semiconductor company Broadcom commented that the total addressable market for AI is expected to rise from $20bn to between $60bn and $90bn in the next three years.

Secondly, fund inflows. The labour market remains strong in the US which tends to signal positive inflows, especially into the biggest of index trackers. And inflows fuel a virtuous circle of demand and growth, which will help support the share price performance of the biggest stocks.

The last time the S&P 500 managed three consecutive years of 20%+ growth was between 1995 and 1998. After rising 24% in both 2023 and 2024, I am optimistic that this feat could be achieved again this year.

And it’s not just the biggest stocks that I am positive about. Economic trends in the US favour companies of all sizes,…

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dscollard

5th Jan

2025 .... So far !

First "week" of the year thus far has kicked off with AIM being in favour for once and out in front +1.4% on the week (after 3 sequential years in red - a first since its inception) - largely helped by Oil prices and Miners/Precious Metal Miner outperforming. Collectively Oilers and Miners now make up less than 15% of the AIM by market cap , Pharm (6.6% of AIM )and Industrial Support names (8.8% of AIM ) also started the year well

The real year likely starts next week with institutions back in force so a relative dominance of retail investor activity may well have skewed the first few trading days of 2025 .

- a few thoughts from the immediate price action to the broader 2025 thematic framework

here's a plot of indices and commodities over the past week. (3.5 trading days in the UK !)

(Click on each image to see a full screen version )

Link to larger image

While 2 days does not a trend make, I'm been expecting power and energy to feature in 2025 and it has kicked off that way as

Oil looks set to break out of its downtrend,
Uranium has turned a corner after a deep technical pullback. (Outshining BTC this week!)
Renewables are finally catching a bid

AI, hyperscalers, mass DC buildouts, electrification etc likely drivers from a thematic point of view for the power/energy play (see Outlook 2025 below)

Renewables are starting to stir which adds to the thesis (or bias ?) being the sector out in front over the past week and month on a relative strength basis. (see plot)

Here's a relative price momentum sector plot for 1764 shares in the UK LSE universe : top right is higher momentum in both timescales, bottom left the opposite (standard 2x2 type construct) - Renewables are conspicuous outliers to the upper right (these are plot of median

Link to larger image

That said , here's a similar plot of the same universe using price relative to 200 and 50 day moving averages ( effectively longer term lagged trends). Renewables sit far to the left as they have had a miserable few years but they are in a recovery zone . Personal Goods, Tobacco , Banks and Consumer Services being the leaders (again these are median values to minimise outlier skew )

(I've added links to external larger images for these but not sure if they will work given Stock may have security )

Link to larger image

Outlook 2025

Every year I trawl though the various macro outlook from the likes of Goldman, JPM and so on - this year I let Perplexity and Gemini Pro do a lot of the work - here's the summary of their outputs : I've added links to the individual reports on my site here which will link to the originating Institutions

All of the obvious health warnings when reading AI generated content though I have curated this and fed the agents the individual .PDF documents rather than allowing them to go wild on the internet so the input quality has been controlled . I have also tuned the prompts and iterated the outputs to some degree though I have run much more detailed and analyses peculiar to my interest and needs (not published)

For those who may be interested, I also asked Gemini to analyse last year's reports and then assess which institution did the best in their predictions - have included a summary appended to the reports here

here's to a better 2025 for' ol Blighty's markets !

____________________________________________________________________________________________________

2025 Outlook Summary and Key Themes (Generated using Perplexity and Gemini Pro)

The financial market in 2024 was a year of exceptional growth, with global equities and bonds experiencing significant gains. However, as we look forward to 2025, the financial landscape presents a mix of opportunities and challenges.

Major Trends and Themes

Global Easing Cycle: Most central banks are cutting policy rates to support economic growth.
Capital Investment: Policymakers and companies are investing heavily in AI, power generation, infrastructure, and security.
US Equity Market: The US equity market is expected to continue its outperformance, driven by strong earnings growth and technological innovation. However, high valuations and market concentration in mega-cap tech stocks pose risks.
Emerging Markets: Emerging markets face challenges, including a crisis of consumer confidence in China and the potential for a renewed trade war with the US. However, countries like India, Indonesia, Taiwan, and Mexico stand out as potential investment opportunities.
Fixed Income: There is still value in fixed income, especially if growth weakens. European markets, with a worse growth outlook than the US, offer significant value in fixed income.
Housing Shortage: The US housing shortage is expected to continue, driving profit growth for homebuilders and real estate investors.
Productivity Gains: Europe's productivity lags behind the US, but AI-driven productivity gains could boost global GDP growth without increasing inflation.
Dealmaking: A rebound in dealmaking is anticipated, with opportunities across various sectors, including private equity, credit, and M&A.
Portfolio Resilience: To manage risks, investors need resilient portfolios, which could mean a greater focus on income, real assets, and strategies that provide downside protection.
New Investment Frontiers: Evergreen alternative funds and sports investing are emerging as new investment frontiers.

Institution	Major Themes	Economic Expectations
Blackrock	financing the future, rethinking investing, staying pro-risk 10	persistent inflation pressures, AI-driven growth, continued economic transformation 10
Goldman Sachs	Strong labor market, consumer spending, inflation trending back toward 2% 11	Global GDP growth of 2.7%, US GDP growth of 2.5%, inflation trending back toward 2% 11
Barclays	AI-driven equity market rally, impact of central bank rate cuts, ESG considerations 12	US GDP growth of around 2%, Eurozone GDP growth of 0.7%, global GDP growth of 3%, UK inflation stabilizing at 2.3% 13
HSBC	Consumer spending as a growth engine, impact of US tariffs on inflation and trade, government stimulus in various regions. 14	Global GDP growth of 2.7%, inflation projected at 3.4%, India at 6.5%, UK with mild acceleration in growth. 15
JPMorgan	Easing global policy, capital investment as a megatrend driver, resilience in European companies, innovative investment frontiers, focus on policy impact over election outcomes. 16	Global growth of 2.2%, core CPI inflation around 3%, and a 15% chance of recession in the first half of 2025. 17
Morgan Stanley	Moderate growth, disinflation, continued monetary easing, potential deregulation 18	Global growth of 3.0% in 2025, with potential negative impacts from tariffs and immigration policies 19
Schroders	Income generation, resilience, decarbonisation 20	Benign economic backdrop, falling inflation and interest rates, soft landing with growth reaccelerating 21

(this is drawn from Perplexity analysis of these reports - the numbers in the table refer to references which can be found in the analysis here

Aggregate Outlooks (Gemini Pro analysis of reports)

Outlook	Description
Global growth	Global growth is expected to be steady, with global GDP growth nearly the same as in 2024. The US is expected to outperform other developed economies.
Interest rates	Interest rates are expected to continue falling as central banks ease monetary policy. This could support growth but may not be enough to boost demand to a level that reignites inflation.
Commodity prices	Commodity prices are expected to be influenced by geopolitical risks and the strength of the US dollar. A strong dollar could put downward pressure on commodity prices.
Investment opportunities	Investment opportunities exist in various sectors, including technology, power generation, infrastructure, security, and real estate. Private markets are expected to play a vital role in financing these opportunities.

Consensus Views on Target Prices

Target	Description
Equity indices	Equity indices are expected to continue rising, with the US equity market outperforming other regions. However, high valuations pose a risk.
Oil	Oil prices are expected to remain range-bound, with geopolitical risks and supply-demand dynamics influencing price movements.
Gold	Gold prices are expected to remain supported by central bank buying and safe-haven demand.
GDPs	GDP growth is expected to be strongest in the US, followed by other developed economies. Emerging markets face challenges, but some countries are expected to outperform.
Interest rates	Interest rates are expected to fall in most developed economies as central banks ease monetary policy. However, inflation and fiscal risks could limit the extent of rate cuts.
Growth rates	Growth rates are expected to be strongest in the US, followed by other developed economies. Emerging markets face challenges, but some countries are expected to outperform.

Best Investment Ideas for 2025

Asset Class	Region	Opportunities	Risks
Equities	US	Strong earnings growth, technological innovation	High valuations, market concentration
Fixed Income	Europe	Value in fixed income, potential for lower interest rates	Worse growth outlook than the US
Real Estate	US	Housing shortage, profit growth for homebuilders and investors	Rising interest rates, affordability challenges
Private Markets	Global	Access to unique opportunities, diversification	Illiquidity, higher fees
Commodities	Global	Potential for supply disruptions, safe-haven demand for gold	Muted global growth, geopolitical risks

Key Outlooks for 2025

Areas of Agreement

U.S. Equities: BlackRock and Bank of America see opportunities in U.S. equities, driven by strong corporate earnings and technological innovation.
Private Markets: J.P. Morgan and BlackRock highlight the importance of private markets, particularly in infrastructure and private credit, for capturing unique exposure to the ongoing economic transformation.
AI: Bank of America and BlackRock emphasize the transformative potential of AI and its role in driving future growth across various sectors.

Areas of Disagreement

Inflation: BlackRock anticipates persistent inflation pressures, while J.P. Morgan believes inflation has cooled. Bank of America notes inflationary pressures above the Fed target, suggesting a more moderate view.
Interest Rates: J.P. Morgan predicts a global easing cycle with falling policy rates, while BlackRock expects Fed rate cuts but cautions that rates will remain above pre-pandemic levels. Bank of America also anticipates lower interest rates, particularly in the short and intermediate term.

Major Trends and Themes

Economic Transformation: BlackRock and J.P. Morgan both highlight the ongoing economic transformation driven by mega forces like AI, geopolitical fragmentation, and the energy transition.
U.S. Corporate Strength: BlackRock and Bank of America express confidence in U.S. corporate strength, driven by robust earnings growth and technological leadership.
Geopolitical Risks: J.P. Morgan and BlackRock acknowledge the heightened geopolitical risks and their potential impact on economies and markets.

Metric	J.P. Morgan	BlackRock	Bank of America	Goldman Sachs	Martin Currie
Overall theme	Building on strength	Building the transformation	Five for 2025	The year of the alpha bet	UK Equities
Macroeconomic view	Global easing cycle, increased capital investment, geopolitical risks	Economic transformation, U.S. corporate strength, geopolitical fragmentation	Advancement of the asset light era, disruptive innovation	Global equities have risen 40% since October 2023	UK Equities are an exceptional opportunity for investors
GDP growth	Continued global economic expansion	U.S. growth to moderate	Global growth to slightly accelerate	-	The UK as one of the fastest-growing economies in the G7
Investment opportunities	Private equity, infrastructure, real estate, real assets, gold	U.S. equities, private markets (infrastructure equity, private credit), AI value chain, aerospace, defense	U.S. equities, fixed income, alternative investments, AI, infrastructure, security	-	UK Equities offer exceptional value to investors

Epitychia

3rd Jan

Mag7 up 63%.

SP up 24% in 2023, up 24% in 2024 and forecast up 24% in 2025.

Can't help thinking that the annual review next year will be saying markets down 40% in 2025, and will they fall another 40% in 2026?

bohenie

TYO9983 - Megan - FWIW Uniqlo is much more than a sportswear retailer but agree it's massively popular. - pop into any of their London stores and they are always buzzing.

yiannos1

Yes everyone that missed all these massive gains have the same wish.

It’s like a bad dream!

All the best

1MCF

I'm hoping for positive trading statements from those retailers next week, and J D Wetherspoon (LON:JDW) at a later date. Shops and supermarkets appeared busy to me in the run up to Christmas, and I've been lucky to get a seat in Wetherspoons during the festive period. Some positive trading statements should help with consumer confidence. If they are less positive, I despair!

Brigra

I very much enjoyed reading this time travel piece published yesterday by legendary Quant investor Cliff Asness - A 2035 review of the previous 10 years trading by a US fund manager covering US equities (underperform) ROW equities (outperform), bonds, private equity, bitcoin and other asset classes. As well as insightful analysis, it's very funny at times .. 'Luckily we had removed non US stocks from our benchmark in 2025, so we experienced no underperformance in the following years' https://www.aqr.com/Insights/P...

Edward Croft

4th Jan

Excellent piece Megan. The US is benefiting from compelling tailwinds as you say. It seems to hoover up global and local capital into its passive indexing system, reinforcing these premium valuations, and ultimately reinforcing monopoly power. It's amazing to behold actually. And I think it's accelerating declines in local markets all around the world - including the UK and Singapore and others - as so many IPOs go to the US. Which then reinforces the agglomeration of global capital in New York.

Wasn't it the Lehman brothers CEO who once said something like " As long as the music is playing, you've got to get up and dance. We're still dancing". The dance can go on a long time! So while I'm more biased towards value investing, I can completely understand why there are strong arguments for growth investors and US growth investing.

For anyone who is investing in US or mega or tech... I thought this podcast was rather good last year. It's Nick Searle interviewing Mark Sheppard, who is the manager of the Manchester & London Investment Trust. He outlines his "Man vs Machine" investment philosophy rather well, and has bet his fund enormously on Nvidia (39%) and Microsoft (23%). I relistened to it over the holiday period.

David Wordsworth

J D Wetherspoon (LON:JDW)

I agree with you. They looked very busy on the rare occasions I was out socially this Christmas. Empirically they have a ‘secret sauce’ of customer loyalty which covers many groups- social groups of mums, people from carer environments and their supports, workmen and then afternoon and evening ‘out on the town’ crowds.
If they can get though the employer NIC hurdle then the market is surely and definitively theirs?

TEIN

You make the US market sound like a black hole Ed, beware any matter within it's gravitational pull.

Harry Hindsight

Trumps 100 days will be "very interesting times". We have some ideas - satellites over manned F35s and tanks, internet security (see undersea cable wars). Small bio over lobbied big Bio (JFK). Rare earth minerals (sorry indigenous Indians, we need on-shoring not devolving to countries that don't have 8 years of regulatory approval systems). Anything Musk worth a close look and SpaceX float. Nuclear the new 'net zero' (sorry Millibund, all that e duh cation).

Rusty2

Never thought of Uniqlo as sportwear, they do a lot of winter gear, thermals, down jackets etc. that sort of thing. Don't even remember any sportswear. Have been in their Tokyo shop.

BnB

Have been in their Tokyo shop.

Amazing, isn’t it?

JSchoffer

Uniqlo have done a great job at capturing the young professional crowd who want to spend more than at the likes of primark for all their basics like t-shirts and chinos. They also offer a free alteration service so make the experience really easy to get what you want.

I see them as a quality provider of non branded gear, similar to a marks and Spencer but more popular with a younger demographic.

Institution	Major Themes	Economic Expectations
Blackrock	financing the future, rethinking investing, staying pro-risk 10	persistent inflation pressures, AI-driven growth, continued economic transformation 10
Goldman Sachs	Strong labor market, consumer spending, inflation trending back toward 2% 11	Global GDP growth of 2.7%, US GDP growth of 2.5%, inflation trending back toward 2% 11
Barclays	AI-driven equity market rally, impact of central bank rate cuts, ESG considerations 12	US GDP growth of around 2%, Eurozone GDP growth of 0.7%, global GDP growth of 3%, UK inflation stabilizing at 2.3% 13
HSBC	Consumer spending as a growth engine, impact of US tariffs on inflation and trade, government stimulus in various regions. 14	Global GDP growth of 2.7%, inflation projected at 3.4%, India at 6.5%, UK with mild acceleration in growth. 15
JPMorgan	Easing global policy, capital investment as a megatrend driver, resilience in European companies, innovative investment frontiers, focus on policy impact over election outcomes. 16	Global growth of 2.2%, core CPI inflation around 3%, and a 15% chance of recession in the first half of 2025. 17
Morgan Stanley	Moderate growth, disinflation, continued monetary easing, potential deregulation 18	Global growth of 3.0% in 2025, with potential negative impacts from tariffs and immigration policies 19
Schroders	Income generation, resilience, decarbonisation 20	Benign economic backdrop, falling inflation and interest rates, soft landing with growth reaccelerating 21

Outlook	Description
Global growth	Global growth is expected to be steady, with global GDP growth nearly the same as in 2024. The US is expected to outperform other developed economies.
Interest rates	Interest rates are expected to continue falling as central banks ease monetary policy. This could support growth but may not be enough to boost demand to a level that reignites inflation.
Commodity prices	Commodity prices are expected to be influenced by geopolitical risks and the strength of the US dollar. A strong dollar could put downward pressure on commodity prices.
Investment opportunities	Investment opportunities exist in various sectors, including technology, power generation, infrastructure, security, and real estate. Private markets are expected to play a vital role in financing these opportunities.

Target	Description
Equity indices	Equity indices are expected to continue rising, with the US equity market outperforming other regions. However, high valuations pose a risk.
Oil	Oil prices are expected to remain range-bound, with geopolitical risks and supply-demand dynamics influencing price movements.
Gold	Gold prices are expected to remain supported by central bank buying and safe-haven demand.
GDPs	GDP growth is expected to be strongest in the US, followed by other developed economies. Emerging markets face challenges, but some countries are expected to outperform.
Interest rates	Interest rates are expected to fall in most developed economies as central banks ease monetary policy. However, inflation and fiscal risks could limit the extent of rate cuts.
Growth rates	Growth rates are expected to be strongest in the US, followed by other developed economies. Emerging markets face challenges, but some countries are expected to outperform.

Asset Class	Region	Opportunities	Risks
Equities	US	Strong earnings growth, technological innovation	High valuations, market concentration
Fixed Income	Europe	Value in fixed income, potential for lower interest rates	Worse growth outlook than the US
Real Estate	US	Housing shortage, profit growth for homebuilders and investors	Rising interest rates, affordability challenges
Private Markets	Global	Access to unique opportunities, diversification	Illiquidity, higher fees
Commodities	Global	Potential for supply disruptions, safe-haven demand for gold	Muted global growth, geopolitical risks

Metric	J.P. Morgan	BlackRock	Bank of America	Goldman Sachs	Martin Currie
Overall theme	Building on strength	Building the transformation	Five for 2025	The year of the alpha bet	UK Equities
Macroeconomic view	Global easing cycle, increased capital investment, geopolitical risks	Economic transformation, U.S. corporate strength, geopolitical fragmentation	Advancement of the asset light era, disruptive innovation	Global equities have risen 40% since October 2023	UK Equities are an exceptional opportunity for investors
GDP growth	Continued global economic expansion	U.S. growth to moderate	Global growth to slightly accelerate	-	The UK as one of the fastest-growing economies in the G7
Investment opportunities	Private equity, infrastructure, real estate, real assets, gold	U.S. equities, private markets (infrastructure equity, private credit), AI value chain, aerospace, defense	U.S. equities, fixed income, alternative investments, AI, infrastructure, security	-	UK Equities offer exceptional value to investors

Joydev Nandi

7th Jan

Excellent analysis.

The Year Ahead

US markets to continue to grow

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About the Author

Megan Boxall

14 comments

Aggregate Outlooks (Gemini Pro analysis of reports)

Consensus Views on Target Prices

Best Investment Ideas for 2025

Key Outlooks for 2025

Areas of Agreement

Areas of Disagreement

Major Trends and Themes

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