Setting the Stage for 2025: My Thoughts on the Year Ahead

As the year comes to a close, it's time to reflect on profits and set the stage for what’s ahead. We’re living in dynamic times, with global conflicts and rapid advancements in AI shaping the landscape. So, I’d like to share my thoughts and projections for the year to come.

If you’ve followed my work, you know my focus is primarily on U.S. stocks, with a smaller interest in European companies. I tend to steer clear of Asian stocks—not because they lack potential, but because understanding the political dynamics and cultural nuances of these regions can be challenging for me.

Now, let’s dive into some numbers. According to JP Morgan’s projections for the S&P 500 (SPY), earnings growth in 2025 is expected to be around 15%, with revenue growth just under 6%. Interestingly, the bulk of this growth is projected to come from small-cap companies, which largely took a backseat in 2024.

Meanwhile, the tech sector is set for another transformative year. With significant increases in capital expenditures (CAPEX), companies like NVIDIA are poised to see even greater revenue and earnings growth. Here’s where it gets exciting: 2025 could be the year we see past investments in AI pay off for tech giants like Apple, Microsoft, Amazon, and Alphabet.

I foresee a twofold effect. First, expenditures on AI may slow as these companies refine their strategies. Second, the returns on these investments will start rolling in, injecting fresh capital into their operations. This combination will likely make tech earnings reports even more compelling in the year ahead.

Inflationary Risks in the U.S. and EU

It’s impossible to discuss predictions for the U.S. and EU without addressing inflation. While it’s too soon to declare victory over this “beast,” I believe the toughest part is behind us. At the moment, inflation seems concentrated in the entertainment and luxury sectors—travel, coffee, and similar discretionary spending areas are still seeing price increases. However, most other sectors are holding steady at or below 2%, with the energy sector being the biggest surprise as it remains largely under control.

Looking ahead, I anticipate reduced spending even in these inflation-prone sectors. Consumers are becoming more cautious, influenced by constant talk of a recession and unsettling geopolitical developments. This cautious behavior is understandable, though the actual triggers for a recession have yet to materialize.

One area of concern for many investors is the ballooning U.S. debt, which has surged in recent years. From my perspective, this issue is often misunderstood. Yes, the debt is enormous and should ideally be smaller, but if leaders like Trump and Elon Musk succeed in implementing a zero-deficit policy, the situation could be brought under control within 2–3 years. I remain optimistic that this shift will happen, leading to a gradual reduction in U.S. debt over the coming years.

Inflation in the EU is far more complex and widespread compared to the U.S. It seems the EU will need to implement even more significant reforms if it wants to remain relevant on the global geopolitical stage. At this point, I don’t see a clear path for the EU to overcome the economic and political pressures it’s facing. While politicians appear to understand the necessary changes, they often seem to lack the courage and skills to implement them effectively.

The year ahead promises to be both volatile and full of opportunities. I’ll be exploring these opportunities right here on my blog.

Wishing you a Happy New Year and plenty of positive returns!