2024 is filled with milestones. Bitcoin (BTC) has surpassed the $100,000 price threshold, lifting the burden of perception about "square rat poison." After a rapid rate hike cycle to curb inflation, the Fed began cutting rates in September, down from 5.33% in January to 4.33% in December.
The S&P 500 index has surpassed many all-time highs throughout the year, providing a value of 23.42% as of now. This figure is more than double the 10.68% annual compound growth rate over the past 32 years.
On January 20, President-elect Donald Trump will officially take office for his second term. From tax cuts and tariffs to deregulation and mass deportations, there are high expectations for Trump’s historic return.
But which factors are likely to have the most significant impact on investor sentiment in 2025?
1. Global impact from efforts to control inflation in the U.S.
On Wednesday, the Federal Reserve (Fed) cut interest rates by another 0.25%, but instead of boosting the market, this move caused the S&P 500 (SPX) to drop 3% for the week—the worst decline since 2001 following a Fed announcement.
Inflation is expected not to reach the 2% target until 2027, and the number of predicted interest rate cuts in 2025 has decreased from four to two. Additionally, tensions between Trump and Fed Chair Jerome Powell could make monetary policy unstable.
If Trump’s tariff policies increase inflation, the Fed will find it difficult to implement easing policies, leading to a stronger dollar. This puts significant pressure on emerging countries that are burdened with dollar-denominated debt, raising repayment costs and weakening global economic growth.
2. Shift from semiconductors to SaaS
AI semiconductor revenue for 2024 is forecasted to reach $71.25 billion, with companies like Nvidia (NASDAQ:NVDA) and Taiwan Semiconductor (NYSE:TSM) benefiting greatly. However, Trump’s tariff policies and trade tensions with China could increase production costs and reduce chip demand.
China has restricted exports of rare metals such as gallium and germanium in response to U.S. export control measures on advanced chips. This forces manufacturers like Nvidia to face risks in the supply chain.
Investors may turn their attention to software companies, especially those in the SaaS sector, which are less reliant on global supply chains and are less affected by tariff policies. Broadcom (NASDAQ:AVGO) is an example as it has diversified into both hardware and software.
3. The return of nuclear energy
In the context of rapidly developing AI, renewable energy sources like wind and solar are gradually revealing limitations. Corporations like Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) have turned to nuclear energy solutions to operate AI data centers.
China leads this trend, adding 34 GW of nuclear energy in the past decade and is building an additional 23 reactors. In contrast, Germany has abandoned nuclear energy, leading to economic decline, especially after the Nord Stream pipeline destruction.
In the U.S., Trump asserted in a podcast in October that he would approve new reactors on "day one" if re-elected, following the NEIMA legislation he signed during his first term. His pro-nuclear policy is likely to focus on tax cuts and streamlining procedures.
VanEck Uranium and Nuclear ETF (NYSE:NLR) has grown by 17.55% this year, although the December market correction reduced profits. Investors may see this as a potential opportunity in the uranium and nuclear energy sector.
