Comment: Market predictions for 2025

“Monetary easing will continue in 2025, but cohesion will be elusive. Central banks face an unpredictable operating environment, with Trump’s return to the White House poised to increase global uncertainty, setting the stage for market volatility” – by Nikos Tzabouras

“The Fed will slow its easing path on reflationary Trump policies, which will support dollar strength. The ECB has a long road to neutral and may have to go beyond that as the ailing economy can’t take another hit from Trump tariffs. This policy differential sets the stage for EUR/USD parity. The Bank of England’s outlook is muddled. More rate cuts are necessary to support a weak economy, but the runway may be short as inflation is not expected to return below 2% before 2027. The pound can gain traction against currencies like the euro but remains vulnerable against the greenback.

“The central banks of India and Australia will be closely watched, as they both bucked the easing trend of 2024, but are on track to start cutting rates this year. Such a pivot could spell more trouble for the Australian dollar and the rupee after last year’s slump against the greenback.

“The BoJ remains in the opposite direction to its major counterparts, with its rate hiking cycle. With inflation above 2%, rising wages and a weak yen, further tightening is on the cards. However, officials are patient and the current political environment does not favor aggressive hikes. USD/JPY strength can be contained this year, since the monetary policy gap will likely narrow.

“Financials can be among the top performers of 2025 and the main beneficiaries of Trump’s return to the White House. The next US President wants lower taxes and to loosen regulatory requirements, both of which can be a boon for banks and financial services firms. Such actions can enhance profitability creating more room for buybacks and dividend payouts. Crucially, the Trump administration could delay or water down the Fed’s proposal for an increase in capital requirements for large banks.

“Utilities is another sector that will continue to shine in 2025, driven by the artificial intelligence boom, and proliferation of EVs. Electricity consumption surges due to the expansion of data centers to power AI, the increasing adoption of electric vehicles and utility companies like Vistra and Constellation are reaping the benefits. Trump may prove the X factor for the industry, which can benefit from deregulation and his pledge to unleash energy production, with natural gas and nuclear power being crucial. On the other hand, potentially higher interest rates and further slowdown in EV adoption could pose headwinds for the utilities sector.

“The technology sector looks poised to extend its Wall Street run on the back of the AI boom, with prospects of tax cuts and less regulation under Trump, offering tailwinds. Microsoft, Meta, Nvidia, and other frontrunners are in a strong position to perpetuate their dominance, but smaller firms like Palantir and Salesforce are also in the spotlight. Still, doubts over the benefits of AI could intensify and progress could slow after the explosion of the past two years, while tech trade wars can also pose further headwinds.

“President Trump may be an isolationist, and his DOGE initiative could look to limit defence spending, but the sector is poised for another strong year. Conflicts in the US and the Middle East, fraught Sino-Western relations, China’s advancements, and need for modernization support the need for continued investments.”

Nikos Tzabouras is Senior Financial Editorial Writer at Tradu