Geopolitics, climate, populism, inflation: the level of risk is surely one of the highest in the last thirty years on these different subjects.
Momentum, generative AI and Trump Trade have dominated the equity markets without sharing in 2024. Sectoral, geographical criteria, market capitalizations or even other themes are relegated to the background and do not provide a satisfactory reading grid for capture market performance drivers. A new calendar year does not mean a change in reading grid. However, to reiterate its 2024 journey, this trinity must overcome its own challenges. We will treat these subjects in order of resistance, then we will discuss possible emerging thematic reading grids for 2025.
THE TRUMP TRADE: FIRST VICTIM OF 2025?
The return of “business America”, “deregulation”, the “rebalancing of world trade” are all subjects which galvanized the financial markets before and after the election. The best illustration of this Trump Trade is the progression of Tesla which during the year went from a performance of -40% to +40%, or 80% in just a few months. Behind these paths, there is the hope of the “literal” application of campaign promises.
However, the inconsistencies between certain measures and the dissensions within the Republicans suggest counterbalances and numerous disappointments. Furthermore, the acceleration of Trump Trade was partially driven by individual investors who can very quickly change their positions. Between unconstitutionality and political compromises, many “Trump trades” will quickly fall in 2025.
GENERATIVE AI: BETWEEN PRISONER’S DILEMMA AND RETURN ON INVESTMENT
Supported by Nvidia, this theme is here to stay over the long term. However, today there is a 7x to 10x ratio between the world’s installed generative AI capacity and concrete commercial applications. Continuing spending at the current rate would only accentuate the emerging overcapacity. For the record, part of the fiber installed in the United States in 2000 has still not been activated. Will it be the same for certain graphics processors?
In the meantime, the R&D efforts of Tech giants to achieve technological singularity allow this theme to persist despite a still uncertain return on investment.
All eyes are now on the next publication of Chat GPT 5. A disappointment in terms of the technological progress of this new generation LLM could trigger a correction on the theme. Signs of crumbling have multiplied since the summer with thematic leadership increasingly tightened around Nvidia and nuclear energy, presumed essential to new generation data centers.
MOMENTUM: EMPEROR OF THE AMERICAN MARKETS, CAN IT END OF FUEL?
According to strategists and your definition of momentum, this style is making a comeback and posting its best performance in more than 20 years. Companies which began 2024 with strong appreciation dynamics and which have been able to continue to increase their turnover, even in a minor way, generally beat the indices by a colossal margin.
Momentum management, in addition to the support of numerous algorithms, can count on the fund surge of ETFs which amplify movements in their favor, for the moment. Momentum management nevertheless tends to self-destruct in the long term: expectations accumulate just like stock market performance, until the point where it becomes almost impossible to surprise on the upside. It is at this moment that a wave of momentum is initiated at another point in the market, sometimes thanks to exogenous elements. Impossible to anticipate with certainty, the “ticking” of the time bomb nevertheless calls us to be vigilant.
SOME THEMATIC ACTIONS FOR 2025
Geopolitics, climate, populism, inflation: the level of risk is surely one of the highest in the last thirty years on these different subjects.
In this context, investors will be able to position themselves in companies contributing to the resilience of our societies on these different subjects and capable of sustaining the value of their assets over time. The objective will not be to achieve the best performance in a given quarter but to provide its allocations with a thematic building block capable of prospering even in more hostile climates.
The markets focused on equities, first on the United States and, within the United States, on large caps and within large caps, on the theme of generative AI and Momentum.
In this context, anything that does not meet this triple qualification is already frustrating and diversifying: American small caps, Europe, China as well as health or climate themes. The culmination of the latter was marked by the election of Biden. Will its low point be reached with Trump’s re-election?
Whatever your contrarian diversification strategy in 2025, our conviction remains that, beyond financial optimization considerations and the preferences of each organization, it is essential to remember that investing is not just a simple investment. It is also a political act that can strengthen or weaken ecosystems and encourage the emergence of virtuous or vicious financing circles.
In 2024, Momentum, Generative AI and the Trump Trade have dominated the stock markets. The acceleration of the latter was also partially driven by individual investors who could very quickly change their positions. This trinity will have to overcome major challenges including political inconsistencies, concrete applications of generative AI and the sustainability of Momentum. The theme of resilience as well as geographic and sectoral diversification should be considered to face increased uncertainties in 2025.
