Human emotion can have a powerful impact on the market — so significant, in fact, that John Maynard Keynes, the founding father of macroeconomics, famously described it as “animal spirits” to account for herd mentality. When people start to feel better about conditions, this spreads to others and it ultimately has an effect on how willing consumers are to spend.
Since the US election, small-business optimism has started to show signs of animal spirits, with the NIB small business index having its largest monthly increase in its 50-year history.
Green shoots in the wider business community have emerged since June, with interest rate curves falling as central bankers started the unwind with inflation retreating across the world. Globally, we have seen over 180 cuts to interest rates in 2024 from central banks versus 367 hikes just a few years ago.
The steady drop in interest rates and cooling inflation have certainly helped to improve business confidence and all the numbers are pointing in the right direction, but 2025 won’t be as predictable as some would have you believe.
With Donald Trump set to commence his second US presidential term next week, and geopolitical conflicts continuing to escalate, the likelihood remains for unexpected market shifts as Trump’s unique negotiating tactics on tariffs push on.
It wouldn’t be a summer break if I didn’t have at least one barbecue conversation veer toward work, with a friend or acquaintance asking for my predictions on which investments could be worth a look in the coming year. So in a bid to pre-empt those discussions, here’s a rundown of a few things I’ll be keeping my eye on in the coming months.
Bitcoin corporate adoption
We’ve seen ongoing debate about whether Bitcoin was the new gold, but 2024 already offered a strong hint that this discussion was misplaced.
Over the past 12 months, we’ve seen both gold and bitcoin have strong years — for very different reasons.
Gold remained a safe bet in the current market conditions of high inflation and central bank demand.
Trump has declared himself the “crypto President” and has pledged to make the US the crypto capital of the planet. Bitcoin has a long way to go to meet the market cap of gold which sits near US$20 trillion ($36t) versus Bitcoin crossing US$2t in December.
The big story for crypto will be when big corporate balance sheets start adding allocations and this will see a herd mentality follow once a major firm does (animal spirts also apply to large corporates). Microsoft recently rejected the proposal, and Amazon has also asked its shareholders the question. For companies with many billions in cash, such as Apple, it seems inevitable they allocate a few per cent in 2025.
If the US Government makes a move to add it as a strategic reserve just as it does with gold, which seems a high chance sooner than later with a pro-crypto Government. If this happens some of the price predictions well north of current levels could become reality.
Can Nike get its swoosh back?
Nike is currently down more than 50% since its November 2021 peak. However, in 2025, its fortunes could reverse as value investors speculate on opportunities in stocks such as Nike, with consumer discretionary stocks benefiting as the global economy recovers from high interest rates and inflation. Among those already betting on this outcome is Bill Ackman, who boosted his stake in Nike by 440% to US$1.4 billion during the third quarter of 2024.
Internally, a key driver of Nike’s potential rebound is the return of beloved company veteran Elliot Hill as chief executive. With over 30 years at the company, starting as an intern, Hill’s dedication and leadership are steering Nike back to its roots while paving the way for its next chapter. External dynamics, including a new president, lower interest rates, stimulus, and easing inflation, create a favourable environment for growth.
Key risks to Nike’s comeback include growing competition from brands such as like Hoka and weakening demand in China. With US$50 billion in revenue, it’s the top player in athletic apparel, but is it still cool? More importantly, will consumers pay for premium gear if times get tougher?
Streaming from the skies
It’s possible that 2025 will become the year we see online video streaming become available at 32,000 feet. Until now, online connectivity on planes has been limited to basic browsing or messaging, but the more widespread application of satellite applications could change that.
Companies such as Starlink have been gaining traction, with several major airlines announcing they will install the technology. The days of spotty internet in the air could soon be behind us.
This will help to boost adoption of the technology, while also providing a powerful showcase of what it can do. No doubt that the likes of Elon Musk will already be in talks with airlines around the world to bring this to life.
Tariff Wars: more bark than bite
The threat of a 2018 repeat tariff war from the US seems high on the agenda in 2025 to create volatility. Trump has a strong negotiating tactic he plays to try to benefit US companies and encourage onshore manufacturing and reduce imports.
The issue with tariffs is that they are an add-on charge that usually hurts the consumer paying for the product, not the seller. Local and more expensive manufacturing also creates a high chance of increasing the price of goods, which could in turn have inflationary impacts. Lower corporate taxes in America look to be a countermeasure to encourage investment and most big technology firms have been expanding such as Tesla, Nvidia and TSMC.
Chinese leader Xi Jinping has warned the US against restarting a trade war, saying: “Tariff wars, trade wars, and technology wars go against the historical trend and economic laws, and there will be no winners”.
The hope, then, is that both Xi and Trump manage to find common ground and work together more productively than they did in the past.
Much of this could ultimately come back to politics. A good example from 2018 was Apple chief executive Tim Cook, who managed to get an exemption from Trump on tariffs impacting the iPhone in China. It was reported Cook explained that competition was fierce from Samsung and Xiaomi and this would have a big impact on the end consumer, showing calmer heads can prevail when challenged.
Let’s hope those calmer heads come together to define the big decisions of 2025 — the benefits would be wide-reaching.
Disclaimer: The information in this article is of a general nature and not intended to be personalised financial advice.
