The stocks and industries to watch in 2025 will be influenced largely by the return of the Trump administration. Let’s be clear – Donald Trump’s re-election will have a massive impact not just on the U.S. but the global economy and trade winds.
Inflation and interest rates will continue to be the two biggest factors dictating the health of the U.S. and Australian economies. The rate cuts in Australia predicted by many did not eventuate and there remains uncertainty as to when the RBA will deliver its first cut.
Extreme government spending and subsidies continue to fuel our inflation and while it may be tracking lower, it still remains outside the RBA’s desired bands.
By contrast, the Fed cut rates twice before the election – one big and one smaller one.
It added another 0.25% cut in the lead-up to Christmas.
But Chair of the Federal Reserve, Jerome Powell, warned against expectations the floodgates might open, projecting only two further quarter-point cuts in 2025.
A cautious approach remains the order of the day. Even still, there are many reasons to be optimistic about investing in the U.S. economy. The US is genuinely a global player and boasts a vibrant outlook under Trump Mark II.
Consumer spending, which is the spinal cord of the economy, has regained momentum after showing signs of wavering leading into the election.
Conversely, Australia continues to teeter towards the risk of a recession.
Australia has a very narrow band of markets which contribute a disproportionate amount to our economy. Given our close economic ties to China, that risk will grow if the Chinese economy also experiences a slowdown off the back of Trump’s policies.
With all that said – here are Andrew Baxter’s stocks and industries to watch in 2025, along with a couple of ‘wildcards’ not be dismissed.
Tech stocks are expected to flourish in 2025, propelled skyward as the AI revolution gathers further momentum.
AI will play an increasingly significant role in the global economy, and pressure is growing on companies that have geared toward using AI to start delivering.
Job shedding has already begun and is expected to grow as more tasks become automated and companies look to reduce their wage bills.
It all points to the Tech sector having a third successive year of significant growth.
The Fed has confirmed predictions before Christmas that the pace of these interest rate cuts will slow.
Bond yields don’t necessarily fall when prices rise.
The Trump administration is expected to stimulate aggressive growth in the economy.
That growth is typically inflationary.
But if jobs shift from the public to private sectors, it will result in a rise in GDP and that will help service their crippling debt levels as well as keep a lid on inflation.
Tariffs don’t necessarily have to be inflationary either if they encourage companies to manufacture within the U.S.
Energy prices should be the real litmus test. If Trump can lower oil and energy prices, it will help take the heat out of the economy and ultimately encourage the Fed to further cut rates.
AB’s tip: TLT and TMF are my best long bond price ETFs with TBT for bond yields.
Emerging markets represent really good value across the board.
India is an interesting one. They had their election earlier in the year which produced some volatility in the market. But the time is ripe to buy back in.
Among Asian countries, India is probably the least vulnerable should China be hit with significant tariffs because it’s not a big trading partner with India.
Mexico no longer looks as attractive with Trump’s tariffs unlikely to be friendly toward them.
A word of caution, however. Conflict around the globe continues to weigh heavily upon emerging markets as does the lack of clarity regarding the handover post January 6 as to exactly what the U.S. tariff policy will look like.
Until we know which countries will be impacted hardest, there remains an element of risk.
AB’s tip: PIN is an exchange-traded fund Andrew has invested in.
Healthcare has been a mainstay of the U.S. election campaign with RFK Jr switching sides to join Team Trump.
He is poised to have an enormous impact on healthcare policy in the U.S. Things have to change but they won’t change quickly.
There are two aspects to the case for healthcare.
Firstly, there remains an ingrained system of unhealthy eating in the U.S., along with reliance on Big Pharmaceuticals. It’s a vicious circle of profitability – you don’t eat well and there’s always a prescription.
It won’t be easy to address and dismantle and it will take a long, long time.
But if the U.S. can improve things at the primary production level by reducing the chemicals going into food production and having more natural and fewer genetically modified products in the food chain, the longer-term benefits are key.
The other aspect is that people are living longer, meaning a heavier reliance on healthcare in their senior years.
Again, it’s a very slow-moving timeframe.
Biotech is a subset of both tech and healthcare and it’s definitely an area that will continue to be quite ripe for the picking.
AB’s tip: XLH is the broad market healthcare ETF worth following.
This is one of the mandates discussed in the run-up to the election. Republicans have control of both the House of Congress and the Senate. Hence they should be able to cut through much of the red tape that is strangling the building industry.
The U.S. property market has been reasonably stable, due partly to limited supply.
Existing homeowners are typically tied to 30-year fixed mortgages at around 2% to 3%.
If they buy a new property, they are forced to refinance at around 6% and that isn’t anywhere near as attractive. It puts the brakes on building.
Additionally, housing approvals have been on a steady decline over the last three years. Like healthcare, change is not likely to happen overnight but as interest rates fall, it should trend in a positive direction. And we know that when you put money into the building space, it acts as a significant multiplier across the economy.
AB’s tip: Lennar, DR Horton, and Home Depot are stocks to watch; the ETF to watch is XHB.
Defence and Energy are the other two sectors to watch closely in 2025. The U.S. has been throwing enormous money into wars in Ukraine and the Middle East. But there have also been substantial cuts to Defence.
The Biden administration’s slashing of the AUKUS agreement from 2.3 subs built per year to just one is a prime example.
A resurgence in Defence spending could yet unfold to ensure a strong and robust America.
Energy is the other interesting one; not so much about the profitability of oil companies because lower oil prices don’t necessarily translate into profitability.
But if Trump is about getting those rivers of black gold flowing again, a lot of oil services companies like Halliburton that are involved in exploration and fracking could become pretty hot pretty quickly.
Andrew Baxter is an investment coach, leading trader, Dad and author of the ultimate guide to financial freedom, The Wealth Playbook.
He is also founder of Australia’s top trading education platform, Australian Investment Education, and host of the Money And Investing podcast.
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