10 Surprises For 2025
2024 was another strong year for markets, however, it became increasingly concentrated as the year went on. Animal spirits returned and the degenerate economy is in full force as we saw some of the most speculation since 2021. We saw the Fed cut interest rates which sent market rates dramatically higher and we also saw a landslide election victory that was expected to be extremely close. I think this sets up 2025 to provide some of the biggest surprises in a long time. First lets recap our surprises for 2024.
#1: Someone other than Trump or Biden wins. Trump won in a landslide, but the last minute switch to Harris was a surprise even though it failed miserably for Democrats.
#2: Stock Market Winner being wrong. While this will take time to play out it is interesting that by the end of the year all of the post election gains in markets were reversed.
#3: There will be no Soft Landing. This is still yet to be determined but so far soft landing is still in play.
#4: A major fund will blow up. This did not happen even though there was a scare in August with the Yen carry trade.
#5: Cash for gold commercials make a comeback. Gold ended up being one of the top performing assets of 2024 but it has stayed off the radar. Once these commercials show up it is time to vacate the gold trade.
#6: Commercial Real Estate Problems Accelerate. This is absolutely true and while it has not mattered yet for the overall market there is worsening pain in this asset class.
#7: Commodities bottom out relative to stocks. There may have been a few small areas that did well such as gold, coffee, and cocoa but overall US stocks maintained their advantage.
#8: AI Mania Fizzles. Not yet, but if you look at the second half of the year, semiconductors underperformed especially outside Nvidia.
#9: China stocks become investable again. For a brief period in late September this looked to be the case as Chinese stocks jumped 50% in 3 weeks. They since have given back those gains but I still feel it is investable again.
#10: Taylor Swift and Travis Kelce get married. Well they didn’t break up so that must count for something.
2025 Surprises
#1: Stocks end the year with a negative return. Coming into 2025 all the wall st analysts upped their price targets, positioning is at one of the highest on record, and retail investors have the highest expectation of stock returns in history. When you couple this with record valuations there is a lot that needs to go right especially when inflation appears to be sticky after the Fed started cutting rates. Even if we don’t get a full scale bear market, a year of digestion would be healthy overall.
#2: Natural Gas is the best performing asset. They do not call this the widow maker for nothing which means you can always expect wild swings. When you look at the global demand for power especially with data center build outs there is no way that we can possibly meet this demand without natural gas. Factor in Russia/Ukraine cutting off European flows and the new US administration opening the doors for US LNG this could be the best performer of 2025.
#3: The Mag 7 will underperform the S&P 500. This would probably be the biggest surprise and most unexpected considering the utter dominance they have experienced over the last 15 years on the stock market. However, with the risks are there for these can’t miss companies. First of all, there valuations are extremely high. Secondly, the money being allocated to them has been consistent and also recently picked up steam. Their dominance has basically made them the market and passive investing allowed them to continue to grow. The creation of single stock etf’s and ones with leverage on these names create a potential for an accident. They have been dominant for good reason, but eventually all the good news gets baked in.
#4: Treasury bonds become a safe haven again. This probably seems like the biggest surprise considering the amount of money that has fled treasuries since the election and the recent uptick again with inflation. So far, the effect of higher interest rates has not been felt by the economy. The longer rates stay higher, the greater the chance for a big mistake. This will ironically lead treasuries back to safe haven status.
#5: What happens in China matters. China has basically been in a depression for the last several years and no one seems to care. They are trying to stimulate the economy but the previous usage of debt is so high that new stimulus has been useless. This has created a deflationary spiral which has caused Chinese yields to get into the 1% range while all other countries see interest rates increase. In fact, Japan has higher interest rates than China. China is going to matter again and they will either export that deflation to the rest of the world or their stimulus will finally work which will cause a boost to commodity prices. Either case will make it difficult for risk assets here in the United States.
#6: The Trump presidency is uneventful. Whether you like Trump or not it is undeniable that he creates headlines. Some people hang on every tweet or social media post that he puts out. There are large expectations for the next 4 years that he is going to do many things. A big surprise would be that he walks back most of the campaign rhetoric and most of his social media posts are used for negotiations that will create some buzz but eventually end up being uneventful both socially and economically.
#7: Risk makes a comeback in the degenerate economy. Today people can gamble on almost everything and they do. I cannot tell you how many times at the gym or at a kids sporting event I see people using their phones to make wagers on just about everything. Inflation has been so strong that most people feel like they need to hit it big in something to just try and get a little bit ahead. The problem with this type of mentality is that when it turns, it hurts a lot. When you risk what you can lose, gambling is not a problem. Over the last several years people have been risking more and more which is evidenced by the explosion in ODTE options and leveraged ETF’s. With bigger swings in markets this year many will get hurt being on the wrong side of some of these trades and people will realize there is risk that comes along with the reward.
#8: Central banks flip and flop. With an economy that is still growing albeit slower than it has and both deflationary and inflationary forces working its way through the global economy Central banks are stuck between fighting inflation and unemployment. This is going to create a lot of indecision and each piece of data that leans in either direction will have bigger weight. This means central banks will be on hold and could signal both rate hikes and rate cuts. There is a distinct possibility that we could see recent cuts turn into hikes later this year or a hold in rate cuts turn into more cuts later in the year. Either way, the playbook for central banks has been ripped up post Covid and I expect them to do a lot of flipping. Remember we are not that far removed from “Inflation is transitory.”
#9: Trump and Musk have a falling out. Those are two big egos that need to coexist. While it has been nothing short of spectacular for each of them so far, lets see what happens when things start getting more difficult. DOGE sounds great in principal but executing their plan will come with some major bumps.
#10: Podcasting reaches saturation. There used to be a saying that “everyone will be famous for 15 minutes.” With the proliferation of smartphones and social media it seems like this might be true. Complete unknowns need just 30 seconds of a viral video to become famous. Then they launch a podcast and a crypto currency and cash in almost instantly. While there are some podcasts that offer some really compelling content, the idea that anyone can do this will begin to fade and real content creators will emerge to the top and the amount of money being thrown at new sensations will start to wane.
I look forward to an entertaining year in the markets and will check back in December 2025 to see how these predictions pan out.