Despite having done a combined review-and-outlook Weekly already, I decided to write another one with the focus solely on the outlook for 2025. Over the last weeks, I have gathered new ideas, but also brought my thoughts in order during the days that I took off. There are a few other things I wanted to share. What could the next investing year have in store for us?

Summary and key takeaways from today’s Weekly
– After two strong years 2023 and 2024, I have become cautious for 2025.
– There are several potentially negative catalysts from the macroeconomic front one should have heard about.
– But also on a more granular level of equities, a few things should be considered. I name my favorites where I am expecting huge disappointments in 2025.

With 2024 coming to an end, we can rather safely conclude that this was a strong year performance-wise for the markets. The major US indices all posted double digit gains (S&P 500 +24%, NASDAQ +30%, Dow Jones +13%). With the exception of France, the big European counterparts followed suit.

All in all and on an index basis, a strong year for stocks.

Despite the “safe every-year Santa Rally” not having taken place this time and ignoring the short-term hiccups in-between (attempted assassinations of Donald Trump or the Japan and volatility panic in early-August), the overall picture looks like a year that only knew one direction.

Up, up, up. The sky’s the limit!

After an already strong 2023, 2024 was another bull year that has sent many investors day-dreaming. But herein lies the danger. Not that I have suddenly decided to switch to the camp of crash prophets and doomsayers over the holidays. To the contrary.

I am firm in remaining a rational, but realistic and optimistic stock investor – at least the best I can. The core of this is to push emotions aside and to deal with probabilities. Not what happened in the past, assuming because something went up it must do so endlessly. But it is necessary not to lose the big picture out of eyesight.

Not only due to everybody seemingly sitting on the same side of the boat, but also due to in many parts of the markets very unattractive risk and reward setups, my plea is to be cautious for 2025.

This doesn’t mean there won’t be any great ideas. There are always ideas and sectors in every environment worth a look.

But patience and a bit of timing could be the key to generate outperformance.

The average total return of my best stock ideas at year end closed slightly below the S&P500, but comfortably above the Dow Jones. I expect the gap to close further during 2025 and finally to be ahead again like e.g. was the case during 2023.

With my risks-first approach (paired with high upside), I am able to find stocks with great returns.

Join me and my members on our journey to beat the markets!

^{both as per 31 December 2024 market close – since August 2022}

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Better not to expect a walk-in-the-park year

One of the last paragraphs of my review-and-outlook Weekly was the following:

Other than the above, I remain skeptical about the overall state of the world economy. I do not believe in a turnaround and return to dynamic growth until I see it. Especially for Europe, my enthusiasm is limited. China, the former world locomotive for growth, is hard to assess, but doesn’t look like a major success story a the moment, either. 

source: 2024 REVIEW + 2025 OUTLOOK, see here

To further elaborate on the macro front, I wanted to add that

• Despite the FED having lowered its interest rates three times from 5.25% to now 4.5%, a bit contradictory the 10-year government bonds have seen a big surge (!) in their yields from 3.6% to ~4.6%. This is a jump of 30% and certainly not nothing.
  
  At some point, too high a yield will pressure stock markets, at least enforce a correction. I do not believe we will see a hefty and long-enduring depression-like stock market crash that one or the other is calling out on Twitter, even if gov bonds should shoot up way above 5%.
  
  But why not another 2022-type of year? A short-term correction would be very likely to digest such a bond-shock.

• Why should US gov bonds fall (thus the yield shoot up) might be the question? Well, not less than c. 25% of the entire federal debt needs to be refinanced next year.
  
  No joke.
  
  This huge “wall of debt” alone has the potential to cause a massive correction in the markets. Supply and demand anyone?

• A nothing burger? Just a formality and on we go? I don’t think so.
  
  Not only is the number in itself very gigantic. But there remains a very big (and realistic!) risk of a lack of buyers for the “wall of debt”. The two biggest holders until here – by far – have been China and Japan. Each earlier in the year owned about a trillion USD. And now suddenly 9 tr. USD can be absorbed easily?
  
  If this weren’t enough, both have even been selling recently. In the case of China and the risk of heightened tensions and worse relations again, it is hard to imagine why China should suddenly load up the truck with US government bonds.
  
  In absence of a default, which I do not see (at least now), the only solution will be massively (!) higher interest rates. Is the market smelling this fat rat already?
  
  Also, do you really think the Fed would continue lowering rates in such an environment? It might sound nuts, but I guess the risk is even that they start raising rates again to attract capital to the Dollar.

• Speaking of raising interest rates: A stronger USD is NOT good for the world economy. Especially here in Europe there is the widespread “understanding” or rather belief that a stronger currency is a symbol of a strong economy. While this might apply to countries like Switzerland, generally a stronger currency is hurting economies which heavily rely on exports.
  
  In 2022, the USD surged massively higher. Markets didn’t like that.
  
  I know, there was also the inflation component. But hey, inflation is still far away from the central bank’s arbitrary 2% targets and to make it even worse has shown a slight uptick again here and there. What if inflation comes back?
  
  Usually, the prospect of a debt crisis and higher inflation should send the USD lower, shouldn’t it? The thing is, it is not that easy. First of all, this takes out what happens everywhere else on the planet as if there were no other economies or currencies (a poor and myopic view) and second, there are more wheels in this gearbox.

• In this context, the Fed’s last conference shocked the markets when they hinted that next year could see only two steps lower, not the much more that were expected.
  
  By the way, 2024 itself has already seen less of an easing than previously propagated. The first screenshot shows that expectations towards the end of 2024 were to reach a rate of below 3.5%. Now, this is unlikely for next year even.

• To make matters worse, as the USD is the world’s reserve currency, a stronger greenback increases the debt burden for those who sold bonds in USD. Brazil is experiencing a big crisis with its currency having fallen to new lows. In tandem, government bond yields have surged, forcing the central bank to hike interest rates.
  
  As a reminder, many emerging markets sell their debt in USD because it has a much higher acceptance. Otherwise, they wouldn’t be able to sell any bonds, especially if denominated in a weak and devaluing currency (causing currency losses for the foreign bond holder). Or they would need to offer extremely high interest rates, killing the economy instantly.
  
  This way, who has dollar-denominated debt outstanding will pray for the USD not to surge.
  
  Interesting: “In 2024, all major EM currencies have lost value against the greenback, save the South African rand and the Malaysian ringgit. At least nine have posted slides of 10% or more.” (see here)

• Why should the USD rise? Not because I am expecting a booming US economy. But rather because I am expecting the Fed not being able to lower rates much more from here, especially if the inflationary uptick should prove not to be “transitory”.
  
  Also, should Trump pull through with his tariff plans – which I see as a bad idea due to hurting the world economy – capital will likely move to the US, leaving the disadvantaged regions.
  
  ^{source: Gerd Altmann on Pixabay}

• China has announced a first stimulus package in September. However, the effect was rather small, leaving out the short-lived boom in China-related stocks. Since then, not much has happened.
  
  Except that the currency has devalued. This will give Trump more room to attack China as he has done during his first term already, accusing China of unfair currency manipulation to gain an edge in exports.
  
  This is insofar not unimportant as many Chinese companies have issued corporate debt in USD. Just think of the property developers that went bust not too long ago…

• What is rather concerning is the rapidly falling yield of Chinese bonds. This usually happens when the opposite of inflation is expected – deflation or maybe even a harsh recession?
  
  Interestingly, the 30-year Chinese government bond yield now has fallen below its Japanese counterpart.
  
  So on this front, we will either see a slumping Chinese economy which previously was the world’s locomotive for growth or a really huge bazooka-like stimulus package that will send the Chinese Renminbi into the basement. Both options are not great, potentially strengthening the USD and making matters worse.

• A few words on Europe, where all hope seems lost.
  
  I just let the two following charts speak for themselves. The first is regarding Germany, the second France – both are Europe’s biggest economies.
  
  The and Dollar shall crash, right? Agains whom, the Euro?

• My final piece on the economic front is Japan. They are in a very unfortunate situation. If they do nothing, the Yen will continue to smear away. I am even expecting to see a USD / JPY rate of above 200 next year when the market pressures Japan very hard.
  
  In the meantime, hiccups can happen when the central bank intervenes to not let the Yen slip away. Remember what happened in early-August? The Yen appreciated pretty much, caught carry-traders on the wrong foot and send shock-waves through the markets. I wrote about the background (see here).
  
  While markets even made new highs after this short-lived slump, I would not bank on it that this will always be just a small event. The market always wins. Either Japan will need to raise their interest rates which still have a big gap to other influential markets (causing this problem directly) or they will see their currency devalue, increasing inflation again.
  
  If politics and the central bank intervene aggressively, the market will challenge them, knowing something’s not right. The target is to defend 160. We are close to that figure.

All in all, such accidents can happen any time.

The more so if political intervention is high or should be expected. Coming back to my statement from the intro that a bit of timing could be a better strategy than just to buy and hold, I can absolutely imagine that the market will offer us one or the other bigger buying opportunity when volatility occasionally shoots up dramatically.

I am quite sure we will see one or the other such opportunity with many potential areas to cause uncertainty in the markets. Markets don’t like uncertainty.

Summing up until here, I see many potential issues to cause a bigger correction in the markets from the macroeconomic front alone.

However, to make it clear, I do not expect a major stock market crash in the magnitude of 50% or more (and staying there), because the public sector is the one that has serious issues. It is not the private sector this time! Capital has to go somewhere.

As bond markets are much bigger than equities, only small shifts can cause equity markets to go up higher again.

And better forget all this gold and Bitcoin nonsense. Not only are these markets not big enough. Big capital needs liquidity and proven assets as well as often also expected returns (i.e. dividends). It is not just about parking the money somewhere, but also about how to get out again. Imagine you’d need to park 10 bn. USD somewhere, not 100k or even a million USD. Where would you go? Bitcoin? Emerging markets?

Neither emerging equity and / or bond markets with smearing away currencies are suitable, nor are nichy and ultra-volatile asset classes like cryptos. The property sector is big, but not liquid. What remain is the US equity and bond market. It is big and liquid and unlikely, at least for now, to see a strong depreciating currency – when everyone wants to hide in the safe place, demand gets up, not down.

Coming now to stocks, I am clearly avoiding the retail crowd’s favorites.

When something breaks, they will be the one’s sold the hardest. Due to the crowd usually not being the smartest investors (fear and greed) as well as passive, stupid money being highly pro-cyclical. If the market falls, the current concentration will reverse. The big tech stocks and favorites will likely drop massively and disproportionately.

I am even going a step further.

In a recent interview on Timo Baudzus’s YouTube channel I said (German language, see here) that I am expecting stocks like Nvidia (ISIN: US67066G1040, Ticker: NVDA) to have a very difficult year. In my review a couple of weeks ago on this blog, I elaborated further on that, hinting in the direction of a few issues, also in connection with Super Micro Computer (ISIN: US86800U3023, Ticker: SMCI).

In the comment section of this interview, but also somewhere else, people have attacked me, some even aggressively, that I have no clue what I am talking about. One even wrote that I were the worst interview guest ever.

I don’t care on a personal level.

But this shows me that I have hit a hornet’s nest, practically committing blasphemy. People have become drunk with their stock ideas and investments. That’s a great recipe for a painful correction to wake such people up. In the US, household allocations to stocks are near an all-time high again.

The same like in late 2021 / early 2022.

You will certainly also like to see that no professional analyst sees downside risks. Here in the case of the S&P500, the outlook from all (!) analysts is higher prices at year end 2025.

The same applies to Bitcoin and the stocks of MicroStrategy (ISIN: US5949724083, Ticker: MSTR) as well as Palantir (ISIN: US69608A1088, Ticker. PLTR).

In a nutshell, I am expecting heavy corrections in all of these.

Nvidia and Palantir could easily drop by 50%. The former in case their issues come more to the surface as well as a slowing economy. The latter due to being an insanely pushed up stock. It trades for more than 60x sales, insiders are selling as heavily as they can and no one knows what this company is actually doing. “Something for the government and AI” is often the answer. Sorry, that’s not an investment thesis.

But even if, the stock is heavily owned by retail gamblers. What could go wrong?

Regarding Bitcoin, this too has become scary.

Bitcoin is neither money, nor a store of value. I don’t care what the fanboys claim. You can neither pay any bills nor taxes with Bitcoin. It is practically useless in everyday life. It lives primarily of “the spirit” and the hope that someone else will pay more than you did. What is the intrinsic value? And regarding the “store of value” function, it fluctuates much more than stocks. Stocks are no store of value, but cryptos shall be?

If I am right and this excess corrects – I can imagine MicroStrategy to go entirely belly-up. You will likely know the story that this is a highly leveraged play on Bitcoin.

MSTR has lost almost 50% from its high a few weeks ago, while Bitcoin held up rather well with only being down ~10%. As soon as Bitcoin corrects, this will get really bloody.

As in reaction to the presidential election the markets seem to have priced in things like Trump being a “crypto-president” or markets to continue rallying relentlessly and together with the macro challenges discussed above, the risk is more to the downside for me.

We might not only soon see a lack of buyers pushing markets up further, but any unexpected event has the potential to cause a massive panic. The more so if uncertainty comes into play.

What does this mean for my strategy and my ideas?

The plan is clear:

• avoid everybody’s darlings
• don’t engage is pseudo-religious investments
• stay away from highly-valued stuff
• keep some powder dry
• prefer special situations that are under-followed, but also have the potential to live on their own with little correlation to broader markets
• companies with strongly positively correlated catalysts on the horizon
• expect the unexpected

Where we all will likely agree is that 2025 could be a very interesting year.

Let it be successful!

Conclusion

After two strong years 2023 and 2024, I have become cautious for 2025.

There are several potentially negative catalysts from the macroeconomic front one should have heard about.

But also on a more granular level of equities, a few things should be considered. I name my favorites where I am expecting huge disappointments in 2025.

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