Momentum, generative AI and Trump Trade have reigned over equity markets in 2024. Sectoral and regional criteria, stock market capitalizations and other themes have been relegated to the background and do not offer adequate means to interpret the drivers of market profitability. The beginning of a new calendar year does not mean that this will change. However, this trio will only repeat their good streak in 2025 if they are able to overcome their own challenges. We will take a look at these aspects in order of resistance, before moving on to the possible thematic reading grids that are emerging for next year.
The ‘trump trade’: the first victim of 2025?
The return of pro-business America, deregulation or the rebalancing of global trade are themes that have galvanized the capital markets both before and after the elections. The best illustration of the Trump Trade is Tesla’s skyrocketing rise, after the stock’s performance went from -40% to +40% over the year, a jump of 80% in just a few months. These increases are fueled by the hope of a literal implementation of the promises made during the presidential campaign.
However, inconsistencies between some of the measures and dissension within the Republican group point to future challenges and many disappointments. In addition, the Trump Trade also gained speed under the impulse of retail investors – and these can change their position very quickly.
Due to questions of constitutionality or political commitment, we expect that many of the measures that make up the so-called Trump Trade will quickly fade away in 2025.
Generative AI
Driven by Nvidia, the topic of AI is here to stay. However, there is currently 7 to 10 times more generative AI capacity installed worldwide than there are specific business applications. If spending continues at the current rate, the excess capacity that is already brewing will be accentuated. As a reminder, large segments of the fiber optic network installed in the US in 2000 have not yet been activated. Will the same happen with some GPUs (graphics processing unit)? Meanwhile, the R&D efforts deployed by tech giants to achieve technological marvels allow the topic to remain alive, despite persistent uncertainty over the return on investment. All eyes are now on the upcoming release of Chat GPT 5. Any disappointment with the technological advances associated with this new generation of GPT could trigger a market correction for AI stocks. Signs of erosion have multiplied since the summer, as leadership within the sector increasingly concentrates around Nvidia and nuclear energy, considered essential to power these next-generation data centers.
Momentum
According to strategists and their own definition of momentum, this style has enjoyed a major comeback and delivered its best returns in over 20 years. Companies that entered 2024 with strong bullish momentum and were able to make consistent – even modest – upward revisions to their sales figures have tended to outperform market indices by a huge margin. Already supported by numerous algorithms, momentum-based investing styles can also rely on the flow generated by ETFs, as they amplify market movements in their favor, for the time being. However, impulse investing tends to self-destruct in the long term: expectations rise, as do stock market returns, until it is virtually impossible to surprise on the upside. This is when new momentum appears in another area of the market, sometimes as a result of exogenous factors. Although the change in trend cannot be predicted with certainty, the time bomb continues to tick and requires vigilance.
Variable income by 2025
Resistance as an investment theme. Geopolitics, climate, populism, inflation: in different areas, risk levels are as high as they have ever been in the last thirty years. In this environment, investors can choose to invest in companies that contribute to the resilience of our societies by facing these challenges and consolidating the value of their assets in the long term. The goal will not be to achieve the highest return in a given quarter, but rather to introduce a new thematic element to portfolio allocations that is capable of thriving even in the most hostile environments.
It has never been so easy to apply a counter strategy
It has never been so easy to apply a counter strategy. Markets have concentrated as investors focused on equities – first in the US, and domestically in the large capsand within these companies on the topic of generative AI and momentum. In this environment, anything that does not meet this triple condition instantly becomes a contrarian and diversification play: small caps in the US, Europe, China, health and climate sectors: the maximum was reached when Biden was elected, will the minimum coincide with Trump’s election?
Whichever contrarian diversification option you choose in 2025, regardless of financial optimization considerations or individual preferences, investors should always keep in mind that Investment is not just a matter of money, but also a political act that can strengthen or strain ecosystems and foster virtuous or vicious investment cycles..
#Investment #themes #holy #trinity
