The Year Ahead
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.
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, while Donald Trump’s proposed corporate tax cuts are likely more beneficial for smaller companies.
UK economic woes to continue in Q1
As for the UK, I am less positive that economic trends are acting in support of the markets.
Although the new Labour government won the general election by a landslide in the summer, it has done very little to restore faith in the UK economy since then. Contrary to expectations, there was no growth whatsoever reported between October and December, forcing the central bank to hold interest rates firm at 4.75%.
And fiscal policy isn’t the only weight on the UK markets. In April, some of the changes announced in the budget will come into effect, most significantly the increase in national insurance and a new national living wage. Retailers and hospitality companies have already suffered some negative sentiment as they have started to calculate the potential cost of these changes. As increased wage bills start to actually kick in, we might start to see a few more profit warnings.
And as long as sentiment remains negative, I am not optimistic about an immediate improvement in liquidity in the UK, which will continue to repel potential new market entrants. In 2024, London’s main market lost 88 companies to takeovers, delistings or collapse, while only 18 new companies joined. That’s the worst outflow since 1995. Turning the ship around will require some significant support, which I am unconvinced will arrive any time soon.
Valuation discrepancy to provide some winners
That said, I am more optimistic about the potential returns for stockpickers.
While the FTSE All Share was up last year, it was among the weakest performing stock markets in Europe. And Aim was disastrous, down 6% over the course of the year and 11% off its May highs.
This has left it trading on a substantial discount to its historic value and that of other global markets.
The FTSE All Share also currently comes with a 4% dividend yield and companies are buying back an average of 2% of their shares a year, which could provide some more stimulus.
Roland’s UK-focused portfolio looks at maximising returns through growth and income. You can read his picks for 2025 here. He’s also recently looked at the buyback situation in the UK to assess whether we’re getting value for more. You can read that here.
The Week Ahead: 6-10 January
Next week is still pretty quiet, but we will get the Christmas trading statements from some of the UK’s retailers which should provide plenty of food for thought.
| UK trading statements | International earnings release | |
|---|---|---|
Monday 6 Jan | ||
Tuesday 7 Jan | Next | |
Wednesday 8 Jan | ||
Thursday 9 Jan | Greggs Hilton Food Group Marks & Spencer Tesco Unite | WD-40 Walgreens Boots Alliance Fast Retailing Constellation Brands |
Friday 10 Jan | Sainsbury |
Next (LON:NXT) kicks off the announcements on Tuesday. The company is often referred to as a bellwether of the British retail space and its numbers should give us a good indication of how the sector fared over Christmas. Some early data seems to suggest high street and shopping centre footfall was down during the key sales periods. But online figures have been relatively resilient.
Next shares themselves have come off the boil a little in the last few months after a generally strong 2024, perhaps amid speculation that rising wage costs could impact profits in 2025. The company was one of more than 80 to sign a letter to Rachel Reeves in November saying that the new national insurance policy could result in job losses. Consensus forecasts for the year to January 2025 are for a slight decline in earnings to 631p and it will be interesting to see whether the company’s management (who tend to be very good at managing expectations) have any more accurate forecasts for the cost of the NI changes.
On the international side, I am interested in the Q1 numbers from Fast Retailing Co (TYO:9983) which are due on Thursday. Fast Retailing is the owner of the massively popular Japanese sportswear company Uniqlo, which first captured the attention of an international audience when it stole Roger Federer from Nike in 2018. The company’s earrings more than doubled between 2021 and 2024 sparking a surge in the share price which helped drive the Japanese stock market to highs not seen since the late 1980s.
I haven’t looked at Fast Retailing for a couple of years (you can read my last analysis here, but it is pretty out of date). But I will be taking a closer look at the Q1 numbers and outlook for the company when they are announced next week, because the shares still look interesting.
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14 comments
Excellent analysis.
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
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
(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)
Consensus Views on Target Prices
Best Investment Ideas for 2025
Key Outlooks for 2025
Areas of Agreement
Areas of Disagreement
Major Trends and Themes
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.
You make the US market sound like a black hole Ed, beware any matter within it's gravitational pull.
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).
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...
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!
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?
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.
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.
Have been in their Tokyo shop.
Amazing, isn’t it?
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.
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?
Yes everyone that missed all these massive gains have the same wish.
It’s like a bad dream!
All the best