No one can truly predict the future. But we spend a lot of time analyzing the markets – and all of the factors that can cause fluctuations – in order to help our clients maximize their investments.
At the start of every year, we take a deep dive into the current financial and economic landscape to help our clients make decisions about the year ahead. Here’s our investors’ preview to 2025.
Growth in AI investment will continue
Last year’s equity market growth was primarily propelled by tech sector companies’ increasing investments in AI. And this trend is likely to continue throughout 2025.
“AI is the reason the tech sector was up last year,” says Wayne Wachell, Executive Chairperson and Co-Chief Investment Officer at Genus, referring to the fact that the ‘Magnificent Seven’ companies (Apple, Amazon, Microsoft, Meta, Alphabet, Tesla and Nvidia) accounted for more than half of the S&P 500’s 25-percent return last year. “Now the major players need to monetize it and make money. We’ll see how that plays out in 2025.”
Government spending will be reduced
With a new government set to take office in the U.S., and a Canadian election on the horizon for 2025, we’ll likely see significant changes on both sides of the border when it comes to government spending – particularly in the U.S., as the soaring government debt load poses a serious risk to the global economy.
“All of where we got to this past year has been propelled by government spending,” says Wachell, referring to 2024’s economic gains. “But it’s not sustainable.”
Incoming President Trump has already proposed an advisory committee to examine and cut back government budgets. And Wachell believes that if it’s successful “expect it to become a blueprint for other countries that are watching. They’ll see it as a playbook.”
Interest rates will continue to decline
Central banks are expected to continue lowering interest rates through 2025, and this should cause a rebound in the economy, Wachell says. Trump’s tariff threats, too, could drive interest rates even lower.
“The government needs to tackle the deficit to keep interest rates down,” Wachell says. “Can they pull it off? We’ll see.”
The world will continue to bifurcate, as geopolitical tensions grow
As global regions continue to draw lines in the sand, we’ll see trade relations further bifurcate, and on-shoring ramp up. “Everyone is working in smaller trading groups,” Wachell says. “The U.S. wants to bring manufacturing home. China will have to sell more to the global south, and create more consumption in its own economy. These hegemonic tensions between big players will continue. The question is, can we manage them without breaking out into a full-scale war?”
The superpower battle we’re seeing play out between the western hegemony, and Russia/China may currently be a cold war, but Wachell believes the tensions need to be decelerated – and that Trump may be the person to do it. “He wants to fight with tariffs and sanctions,” Wachell says. “He prides himself on stock markets going up, and since he was elected, they have. I believe he will try to mitigate some of these tensions.”
With or without this counter-reaction to the election results, we’ll see responsible investing continue to grow, as it has over the last several years. “We know from some of the surveys done by The Global Impact Investing Network (GIIN), impact investors are planning to increase their allocation to the renewable energy sector, to clean energy and to climate change mitigation,” says Stephanie Tsui, Chief Sustainability Officer, Portfolio Manager and Partner at Genus. “We’re seeing more demand for values alignment, and the younger generation is one of the key drivers.”
Looking for a more exhaustive forecast for 2025? Watch the recording of our annual year in review and 2025 market outlook.
References:
- Fries, T. (2024, December 30). AI investment landscape: From 2024 tech rally to 2025 Broader Market Opportunity. Investing.com.https://www.investing.com/analysis/ai-investment-landscape-from-2024-tech-rally-to-2025-broader-market-opportunity-200655755
Soaring U.S. debt poses risks to global economy, IMF warns. (2024, June 27). The Washington Post. Retrieved January 6, 2025, from https://www.washingtonpost.com/business/2024/06/27/imf-warning-united-states-debt/
Trump’s tariff threat could drive interest rates even lower in 2025, economists predict. (2024, December 27). Toronto Star. Retrieved January 6, 2025, from https://www.thestar.com/business/trumps-tariff-threat-could-drive-interest-rates-even-lower-in-2025-economists-predict/article_6cb29472-b8c1-11ef-af16-4353f00b3c7a.html
- Uhlig, L. (2024, July 29). Deep Dive: A ‘new world order’ will lead to bifurcated blocs and more US-China protectionism. //www.investmentweek.co.uk/. https://www.investmentweek.co.uk/news-analysis/4339829/deep-dive-world-order-lead-bifurcated-blocs-us-china-protectionism
