As mentioned last week, investors who stick to traditional valuation methods are being left behind as US stocks, AI-focused companies, and cryptocurrencies soar. Once markets gain momentum, they can keep running for a long time, especially when the current narrative—cooling inflation, steady economic growth, and falling interest rates—keeps playing out.
Valuation tends to matter most when a shift in perception occurs—whether it’s inflation heating up, growth accelerating or slowing, or interest rates staying high longer (or even increasing). These five key themes could heavily influence the market in 2025 and beyond.
Debt The new UK government continues to face criticism for tackling the country’s fiscal deficit, while the French government struggles after attempts to raise taxes and cut spending. Meanwhile, America’s federal debt keeps growing. With President-elect Trump’s policies likely driving government borrowing even higher, there are concerns ahead. America’s interest payments on this debt have already surpassed $1 trillion annually—more than the defense budget. If bond yields rise or interest rates remain high, this could mean trouble for the market, and investors are flocking to gold and Bitcoin as safer havens.
World Trade While President Trump’s tariffs were mostly directed at China during his first term, other countries like France and Mexico were spared—but only after striking deals. The economic effects of these tariffs remain unclear. While they could push inflation higher by increasing the cost of imported goods, history shows that higher prices tend to reduce demand. We need to keep an eye on world trade flows in 2025 to understand the true direction of the global economy.
The Dollar If Trump’s tariffs successfully reduce America’s trade deficit, it could also mean fewer dollars flowing out of the US and potentially the first trade surplus since 1975. While this could help the US, it might lead to a lack of liquidity globally. Many emerging markets are highly sensitive to the dollar’s strength, especially when it increases the cost of servicing debt. US trade policies will have a big impact on these countries and could drive market reactions.
Oil and Food Prices While inflation remains near the target of 2% due to falling goods prices, oil and food prices still have the potential to swing unexpectedly due to weather and geopolitical factors. We need to closely monitor these sectors in 2025, especially with services inflation still running high. This could, in turn, trigger wage demands that may affect broader economic stability.
The Magnificent Seven The so-called Magnificent Seven—Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla—continue to dominate, with an average 65% gain this year alone. Together, these companies now represent 36% of the S&P 500, pushing the index to make up 62% of the FTSE All-World’s market value. Despite their success, they are not immune to economic cycles. A sudden recession or sustained inflation could impact these companies, especially if it shifts investor focus to more stable, cyclical, and value stocks. A perfect balance is needed to navigate the future.
