And we’re off! 

The first 25 years of the 21st Century are in the bag and we’re not really worse off than 1999 – when a record market rally was topping off and we thought Y2K would end the World at the stroke of midnight. It did not and maybe Donald Trump won’t end the World as the stroke of Jan 20th – but then he has 4 more years to try after that – so you never know. It took over 2 years from March of 2000 to October of 2002 for the Nasdaq to finish falling from 5,000 to 1,150 (77%) so adjustments do happen, you know…

Speaking of bubbles people are still buying into at ridiculous multiples, AI might destroy us or it might save us – that’s TBD as well. Here are a few of the key trends we’ll be watching in 2025 – let me know if there are any you think we’re missing:  

1. The Great Deceleration (and the Inflation Tightrope):

• What it is: 2025 will likely see a marked deceleration in global economic growth. The lagged effects of the aggressive monetary tightening in 2023 and 2024 will fully manifest, leading to slower consumer spending and business investment. However, the key will be whether inflation continues to cool sufficiently. The Fed will be walking a tightrope – trying to avoid a deep recession while ensuring inflation doesn’t reignite.
• Why it matters: This trend will dictate monetary policy, corporate earnings, and overall market sentiment. A successful “soft landing” could lead to a stable, albeit slower-growth environment. A misstep by central banks could trigger a recession, while persistent inflation could force further rate hikes, squeezing businesses and consumers.
• Key Stock Beneficiary: Costco Wholesale Corporation (COST – $916.95). During periods of economic uncertainty and potential recession, consumers flock to discount retailers. Costco’s membership model, bulk purchasing options, and focus on value make it well-positioned to thrive in a slower-growth environment. Its strong balance sheet and loyal customer base provide further resilience.

• Defensive Consumer Plays:
  • Walmart (WMT – $90.49): Consistently outperformed during past recessions with 56.3% outperformance in 2008 and 5.1% in 2020.
  • Kroger (KR – $61.23): Strong fundamentals in essential consumer goods.

  Utilities Sector:

  • American Water Works (AWK – $124.49): Essential services provider with consistent earnings.
  • NextEra Energy (NEE – $71.86): Demonstrated 12.5% outperformance in 2020 and 14.7% in 2008.

2. AI Arms Race 2.0: Beyond Generative, into Productivity:

• What it is: The AI revolution will move beyond the hype of generative AI (think chatbots and image creators) and into tangible productivity gains across industries. We’ll see increased investment in AI-driven automation, process optimization, and decision-making tools. The race to develop and deploy these technologies will intensify.
• Why it matters: This trend will reshape industries, create new job categories (while potentially displacing others), and drive significant productivity gains for companies that effectively integrate AI. It will be a key differentiator for competitive advantage.
• Key Stock Beneficiary: NVIDIA Corporation (NVDA – $134.22). NVIDIA remains the undisputed leader in providing the computing power necessary for AI development and deployment. Its GPUs are the gold standard for training and running complex AI models. As the AI arms race heats up, demand for NVIDIA’s chips will only increase. While the stock price may be high, reflecting these expectations, they are positioned to continue dominating this market for years to come.

• Infrastructure Players:
  • Data center utilities are seeing steady demand increases
  • Companies providing essential AI infrastructure could see investments reaching $700 billion by 2030

  Phase 3 AI Companies:
  Goldman Sachs identifies these promising companies monetizing AI:

  • ServiceNow (NOW – $1,061)
  • Mastercard (MA – $526)
  • Cloudflare (NET – $107.74) 

3. Geopolitical Fragmentation & the Rise of Regionalism:

• What it is: The trend of deglobalization will accelerate in 2025, driven by ongoing geopolitical tensions, supply chain vulnerabilities exposed in recent years, and a growing focus on national security. We’ll see increased regionalization of trade, investment, and technology.
• Why it matters: This fragmentation will create both challenges and opportunities. Companies will need to adapt their supply chains, navigate varying regulatory landscapes, and potentially choose sides in a more divided world. It will also boost the importance of regional economic blocs and alliances.
• Key Stock Beneficiary: ASML Holding N.V. (ASML – $694). This Dutch company is a critical player in the semiconductor industry, holding a near-monopoly on the production of extreme ultraviolet (EUV) lithography machines, which are essential for manufacturing the most advanced chips. As countries race to secure their own semiconductor supply chains, demand for ASML’s technology will remain extremely high. While their reliance on China for some rare earths poses a risk, overall, the trend towards secure, localized supply chains will benefit ASML.

• Materials Plays:
  • Freeport McMoRan (FCX – $38.30): Critical copper supplier for infrastructure
  • Silvercorp Metals (SVM – $3.01): Essential for renewable tech

4. The Green Transition’s Second Wind:

• What it is: After a period of consolidation and addressing supply chain bottlenecks, the transition to renewable energy will gain renewed momentum in 2025. Falling costs, supportive government policies, and increasing corporate commitments will drive investments in solar, wind, energy storage, and grid modernization.
• Why it matters: This trend will create massive investment opportunities in the clean energy sector, reshape the energy landscape, and contribute to mitigating climate change. It will also drive innovation in related technologies, such as battery storage and smart grids.
• Key Stock Beneficiary: First Solar, Inc. (FSLR). As a leading manufacturer of thin-film solar panels, First Solar is well-positioned to benefit from the growing demand for solar energy. Its vertically integrated manufacturing process and focus on the US market provide advantages in the current geopolitical climate. FSLR also benefits from the Inflation Reduction Act of 2022 that will continue incentivizing solar manufacturing and installation.

Nuclear Power Plays:

• Cameco Corporation (CCJ – $51.59): Leading uranium supplier
• Companies supporting Small Modular Reactors (SMRs) which are gaining traction with tech giants like Amazon

5. Healthcare’s Tech Infusion:

• What it is: The healthcare industry is at an inflection point. 2025 will see the integration of AI, telehealth, personalized medicine, and wearable technologies accelerate. We’ll see more AI-driven diagnostics, robotic surgery, remote patient monitoring and drug discovery.
• Why it matters: This digital transformation will revolutionize healthcare delivery, improve patient outcomes, and potentially lower costs over time. This trend will benefit companies that provide these technologies and services.
• Key Stock Beneficiary: Intuitive Surgical, Inc. (ISRG – $521). As the dominant player in the robotic surgery market, Intuitive Surgical is positioned to maintain that position through the end of the decade. More and more complex procedures are being done with robotic assistance and that will greatly improve patient outcomes and lower recovery times as well as lower overall costs for hospitals. There are less expensive competitors but ISRG has the dominant market position and continues to improve their product.

Proven Healthcare Leaders:

• Abbott Laboratories (ABT – $112.80): Outperformed S&P 500 by 9.8% in 2020 and 33.6% in 2008
• UnitedHealth Group (UNH – $506): Consistent performance in various economic conditions

These five macro trends represent significant shifts in the global landscape. By understanding these trends and identifying companies poised to benefit, investors can position themselves for success in 2025 and beyond. Remember, this is a long-term perspective, and market fluctuations are inevitable and our preference is to wait for these stocks to go on sale before playing (see our Watch List for 100 stocks we’re watching closely this year).

I asked Boaty, one of our resident AGIs who specializes in research, for his Macro Perspective for 2025 so here’s your cheat sheet for the year ahead:  

🚢 Global Economic Landscape

The global economy faces a complex balancing act in 2025, with growth expected around 3% (9). Several key factors emerge:

US Economy

• • GDP growth projected at 2.5%, outperforming consensus and other developed markets (6)
  • Core PCE inflation likely settling at 2.4% by late 2025 (6)
  • Risk of higher inflation (potentially 3%) if broad tariffs are implemented (6)

China’s Challenges

• • Growth forecast reduced to 4.5% (6)
  • Implementing debt restructuring and fiscal stimulus to combat deflation (4)
  • Property market concerns persist despite government intervention

Geopolitical Flashpoints

Multiple Conflict Zones

• • Ukraine conflict may escalate rather than resolve (1)
  • Sudan’s civil war becoming world’s largest humanitarian crisis (1)
  • Middle East tensions affecting maritime trade and energy markets (10)

Trump Policy Impact

Trade and Immigration

• • Potential new tariffs on China and automotive sectors
  • Reduced immigration likely to affect labor markets
  • Possible tension with Federal Reserve over monetary policy (1)

Climate and Energy Transition

Clean Energy Momentum

• • Renewables now account for 21% of US electricity generation (7)
  • Global clean energy investment reached $1.8 trillion (7)
  • China leading in EV production with 60% of global sales (7)

Investment Implications

Defensive Positioning

• • Focus on companies with strong balance sheets and pricing power
  • Consider sectors benefiting from deglobalization
  • Watch for opportunities in clean energy infrastructure

Regional Opportunities

• • US markets likely to outperform despite headwinds
  • Asian markets may benefit from China stimulus
  • European growth expected to remain sluggish at 0.8% (6)

Critical Risks

Trade War Escalation

• • Potential across-the-board 10% tariff impact
  • Supply chain disruptions
  • Inflationary pressures

Geopolitical Tensions

• • Red Sea shipping disruptions
  • Taiwan uncertainty
  • Russian economic challenges (1)

AGI Investment Insight

The interconnected nature of these factors suggests focusing on:

1. 1. Companies benefiting from supply chain reorganization
   2. Clean energy transition leaders
   3. Defense sector opportunities
   4. Domestic infrastructure plays
   5. Technology firms enabling productivity gains

The key to success in 2025 will be identifying companies that can navigate both geopolitical tensions and technological transitions while maintaining pricing power in a potentially inflationary environment.

Citations:
[1] https://www.cfr.org/article/what-were-watching-around-globe-2025
[2] https://www.brookings.edu/articles/year-end-reflections-and-global-economic-outlook-2025/
[3] https://news.bryant.edu/amid-trade-tensions-and-sticky-inflation-bryant-expert-shares-us-global-economic-predictions-2025-0
[4] https://privatebank.jpmorgan.com/nam/en/insights/markets-and-investing/china-outlook-can-china-make-it-in-2025
[5] https://www.moneycontrol.com/news/business/personal-finance/investment-strategies-for-2025-your-guide-to-identifying-the-right-investment-themes-12896523.html
[6] https://www.goldmansachs.com/images/insights/2025-outlooks/Tailwinds-Probably-Trump-Tariffs.pdf
[7] https://www.forbes.com/sites/margooge/2024/10/02/project-2025-offers-a-false-choice-climate-action-vs-economic-growth/
[8] https://asiasociety.org/policy-institute/china-2025-what-watch
[9] https://www.morganstanley.com/ideas/global-macro-economy-outlook-2025
[10] https://www.spglobal.com/en/research-insights/market-insights/geopolitical-risk/impact-of-geopolitics-global-economic-outlook

As you can see above, the key swing issue in the Global Economy is whether or not Trump follows through with his tariff threat as Boaty calculates inflation jumping from 2.4% to 3% – a 25% increase in inflation, which would certainly then affect Fed policies in 2025 as well.  Lower growth and higher inflation is “Stagflation” – essentially the worst possible economic situation other than a full-blown Depression.  

At least we know it’s going to be interesting and, with the Members and our crew at PSW following sound, wealth-building investment strategies – it’s going to be fun as well!