2025 Outlook: At the Doorstep of the Reckoning
December 16, 2024
Read Time 5 MIN
The investment landscape for 2025 is shaped by four key macroeconomic trends that call for prudence and strategic positioning:
- The U.S. faces a fiscal reckoning as government spending cuts and inflation risks dominate the outlook. Investors should diversify equity portfolios and hedge against inflation risks.
- Bull markets in gold and bitcoin are supported by inflationary pressures, fiscal uncertainty and de-dollarization trends. Investors should maintain positions in these assets as core inflation hedges.
- The next phase of AI is driving broader market benefits, while soaring electricity demand underscores the importance of nuclear and natural gas. Investors should look beyond tech to energy, infrastructure and utilities.
- India’s rapid growth and relative value present compelling opportunities. Investors should increase exposure to India and consider selective exposure to China and other global equities.
At the Doorstep of the Reckoning: Thoughtful Money Interview with Jan van Eck
View the 2025 Outlook Presentation
The Challenge of Fed Loosening in a Persistent Inflation Environment
The U.S. economy is at a critical juncture as fiscal policy takes center stage. Fiscal spending is unsustainable, and these problems are often addressed in the year after a Presidential election. My base case is that the incoming administration will be able to cut $500 billion in spending. While this signals an attempt to address fiscal imbalances, the cuts are unlikely to eliminate the deficit entirely. In simple terms, we will be going from two feet on the gas pedal to one foot on the gas. However, failure to follow through would exacerbate inflation risks, leading to higher long-term interest rates and potential market volatility. While the U.S. stock market has many things going for it—profit growth, a strong economy, low unemployment—high valuations and inflation risks caution against an overweight position.
Services Inflation Still High
Source: Bureau of Labor Statistics. Data as of October 2024. The "Consumer Price Index for All Urban Consumers: All Items Less Food & Energy" is an aggregate of prices paid by urban consumers for a typical basket of goods, excluding food and energy. This measurement, known as "Core CPI," is widely used by economists because food and energy have very volatile prices. Past performance is no guarantee of future results.
Inflation remains persistent, especially in services and wages, defying expectations of rapid moderation. The Federal Reserve’s approach of “higher for longer” interest rates reflects the huge fiscal stimulus, and while short-term rate cuts may occur, any sharp easing is unlikely barring a severe economic contraction.
Higher tariffs can also be inflationary, although only in a minor way. It should be noted that when analysts cite the 1930 Smoot-Hawley Tariff Act’s so-called bad effect on global trade, this is usually overstated.
- Avoid overconcentration in U.S. large-cap equities, which remain richly valued.
- Alternatives include cash, short-duration fixed income, and international equities.
Gold and Bitcoin: Inflation Hedges in Focus
Gold and bitcoin continue to stand out as robust hedges against inflation and fiscal uncertainty. Gold’s bull market is underpinned by foreign central bank purchases and a global trend toward de-dollarization. Bitcoin, which recently surpassed $100,000, continues the bull cycle following its Q2 “halvening,” with potential to reach $150,000–$170,000 in this cycle.
Bitcoin and Gold Have Led in 2024
Source: FactSet. Data as of November 30, 2024. “U.S. Stocks” represented by the S&P 500 Index. “REITs” represented by FTSE NAREIT All REITs Index. “EM Stocks” represented by MSCI Emerging Markets Index. “International Stocks” represented by MSCI AC World ex USA Index. “U.S. TIPS” represented by Bloomberg U.S. TIPS (1-3 Year) Index. “U.S. Bonds” represented by Bloomberg U.S. Aggregate Bond Index. “International Bonds” represented by Bloomberg Global Aggregate ex US Index. “Commodities” represented by Bloomberg Commodity Index. Past performance is not indicative of future results. Index performance is not indicative of product performance. It is not possible to invest directly in an index.
Both assets have proven resilient in inflationary periods and align with the long-term shifts in investor sentiment toward alternative currencies and decentralized assets.
How to Invest:
- Global demand is supporting the momentum for gold, but be prepared for corrections.
- Bitcoin can also act as a “store of value” holding, continuing in a three-year bull market as has followed prior “halvenings.”
AI Phase 2: From Tech Dominance to Broader Market Benefits
While semiconductor stocks drove the initial wave of the AI trade, we believe that financial markets will reflect the fact that many businesses are realizing the productivity gains from AI. Companies are increasingly deploying AI to enhance operational efficiency, creating opportunities in sectors beyond tech. This phase is also fueling unprecedented demand for electricity, underscoring the strategic importance of reliable energy sources.
Nuclear energy is emerging as a critical player, with sudden bipartisan support and growing investments from hyperscale tech companies. The timeline for new nuclear facilities spans years, creating interim opportunities in natural gas and grid infrastructure as bridging solutions.
How to Invest:
- Diversify into sectors benefiting from the AI-driven energy demand, including natural gas, utilities, and infrastructure.
- Reassess mega-cap tech exposure as valuations peak and growth shifts to other areas of the market.
Find Growth Beyond U.S. Borders: India and International Opportunities
International markets, particularly India, offer compelling opportunities in 2025. India is poised to become as economically significant as continental Europe within the next decade, supported by robust consumer growth. While valuations are high, India’s price/earnings-to-growth ratio is actually more attractive than the U.S., offering better value for future earnings.
The recent pullback in Indian markets presents a timely opportunity to enter or increase exposure. These dips allow investors to participate in one of the most compelling macro growth stories without overpaying at stretched valuations.
Recent India Correction a Buying Opportunity
Source: Bloomberg. Data as of November 30, 2024. Past performance is no guarantee of future results.
China also presents a mixed opportunity. Despite challenges in its property market, low valuations and technological advancements in key industries provide selective investment potential.
How to Invest:
- Take advantage of dips in Indian markets for strategic entry points into this long-term growth story.
- Consider China selectively, targeting technology leaders while avoiding sectors vulnerable to geopolitical tensions.
Key Takeaways for 2025
- Fiscal Reckoning and Inflation Risks: Reduce overexposure to U.S. stocks, and rebalance toward inflation-hedging strategies and global opportunities.
- Gold and Bitcoin: Maintain or increase exposure to gold and bitcoin, assets for hedging inflation and fiscal uncertainty that are supported by long-term trends.
- AI Phase 2: Look beyond tech to energy and infrastructure plays, including nuclear, natural gas and utilities.
- India and International Opportunities: Expand allocations to India and global equities, taking advantage of dips for strategic entry points.
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DISCLOSURES
Please note that VanEck may offer investment products that invest in the asset class(es) or industries included in this blog.
S&P 500 Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sector.
FTSE NAREIT All Equity REITs Index is a free-float adjusted, market capitalization-weighted index of U.S. Equity REITs. Constituents of the Index include all tax-qualified REITs with more than 50 percent of total assets in qualifying real estate assets other than mortgages secured by real property.
MSCI Emerging Markets Index tracks large and mid cap representation across emerging markets countries. The MSCI Emerging Markets Investable Market Index (IMI) captures large, mid and small cap representation across Emerging Markets countries.
MSCI AC World ex USA Index covers a large portion of the global equity opportunity set outside of the United States. It includes large and mid-cap stocks from 22 developed market countries and 24 emerging market countries.
Bloomberg U.S. TIPS (1-3 Year) Index measures the performance of the U.S. treasury inflation-linked bond market of obligations with maturities of 1-3 years.
Bloomberg U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market.
Bloomberg Global Aggregate ex USD Index measures the performance of global investment grade fixed-rate debt markets that excludes U.S. dollar-denominated securities.
Bloomberg Commodity Index is a broadly diversified index that tracks the commodity markets through commodity futures contracts and is made up of exchange-traded futures on physical commodities, which are weighted to account for economic significance and market liquidity.
MSCI India Index is designed to measure the performance of the large and mid cap segments of the Indian market. The index covers approximately 85% of the Indian equity universe.
S&P 500 Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2024 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spdji.com. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
Investments in small and mid-cap stocks may be more volatile than those of larger ones, and they are also often less liquid than those of larger companies because there is a limited market for small and mid-cap securities.
Emerging Market securities are subject to greater risks than U.S. domestic investments. These additional risks may include exchange rate fluctuations and exchange controls; less publicly available information; more volatile or less liquid securities markets; and the possibility of arbitrary action by foreign governments, or political, economic or social instability.
Investments in emerging markets bonds may be substantially more volatile, and substantially less liquid, than the bonds of governments, government agencies, and government-owned corporations located in more developed foreign markets. Emerging markets bonds can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.
Global resource investments are subject to risks associated with real estate, precious metals, natural resources and commodities and events related to these industries, foreign investments, illiquidity, credit, interest rate fluctuations, inflation, leverage, and non-diversification.
Gold investments are subject to the risks associated with concentrating its assets in the gold industry, which can be significantly affected by international economic, monetary and political developments. Investments in gold may decline in value due to developments specific to the gold industry. Foreign gold security investments involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, or political, economic or social instability. Gold investments are subject to risks associated with investments in U.S. and non-U.S. issuers, commodities and commodity-linked derivatives, commodities and commodity-linked derivatives tax, gold-mining industry, derivatives, emerging market securities, foreign currency transactions, foreign securities, other investment companies, management, market, non-diversification, operational, regulatory, small- and medium-capitalization companies and subsidiary risks.
There are inherent risks with fixed income investing. These risks may include interest rate, call, credit, market, inflation, government policy, liquidity, or junk bond. When interest rates rise, bond prices fall. This risk is heightened with investments in longer duration fixed-income securities and during periods when prevailing interest rates are low or negative.
Investments in digital assets and Web3 companies are highly speculative and involve a high degree of risk. These risks include, but are not limited to: the technology is new and many of its uses may be untested; intense competition; slow adoption rates and the potential for product obsolescence; volatility and limited liquidity, including but not limited to, inability to liquidate a position; loss or destruction of key(s) to access accounts or the blockchain; reliance on digital wallets; reliance on unregulated markets and exchanges; reliance on the internet; cybersecurity risks; and the lack of regulation and the potential for new laws and regulation that may be difficult to predict. Moreover, the extent to which Web3 companies or digital assets utilize blockchain technology may vary, and it is possible that even widespread adoption of blockchain technology may not result in a material increase in the value of such companies or digital assets.
Digital asset prices are highly volatile, and the value of digital assets, and the companies that invest in them, can rise or fall dramatically and quickly. If their value goes down, there’s no guarantee that it will rise again. As a result, there is a significant risk of loss of your entire principal investment.
Digital assets are not generally backed or supported by any government or central bank and are not covered by FDIC or SIPC insurance. Accounts at digital asset custodians and exchanges are not protected by SPIC and are not FDIC insured. Furthermore, markets and exchanges for digital assets are not regulated with the same controls or customer protections available in traditional equity, option, futures, or foreign exchange investing.
Digital assets include, but are not limited to, cryptocurrencies, tokens, NFTs, assets stored or created using blockchain technology, and other Web3 products.
Web3 Companiesinclude but are not limited to, companies that involve the development, innovation, and/or utilization of blockchain, digital assets, or crypto technologies.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
© 2024 Van Eck Associates Corporation
DISCLOSURES
Please note that VanEck may offer investment products that invest in the asset class(es) or industries included in this blog.
S&P 500 Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sector.
FTSE NAREIT All Equity REITs Index is a free-float adjusted, market capitalization-weighted index of U.S. Equity REITs. Constituents of the Index include all tax-qualified REITs with more than 50 percent of total assets in qualifying real estate assets other than mortgages secured by real property.
MSCI Emerging Markets Index tracks large and mid cap representation across emerging markets countries. The MSCI Emerging Markets Investable Market Index (IMI) captures large, mid and small cap representation across Emerging Markets countries.
MSCI AC World ex USA Index covers a large portion of the global equity opportunity set outside of the United States. It includes large and mid-cap stocks from 22 developed market countries and 24 emerging market countries.
Bloomberg U.S. TIPS (1-3 Year) Index measures the performance of the U.S. treasury inflation-linked bond market of obligations with maturities of 1-3 years.
Bloomberg U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market.
Bloomberg Global Aggregate ex USD Index measures the performance of global investment grade fixed-rate debt markets that excludes U.S. dollar-denominated securities.
Bloomberg Commodity Index is a broadly diversified index that tracks the commodity markets through commodity futures contracts and is made up of exchange-traded futures on physical commodities, which are weighted to account for economic significance and market liquidity.
MSCI India Index is designed to measure the performance of the large and mid cap segments of the Indian market. The index covers approximately 85% of the Indian equity universe.
S&P 500 Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2024 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spdji.com. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
Investments in small and mid-cap stocks may be more volatile than those of larger ones, and they are also often less liquid than those of larger companies because there is a limited market for small and mid-cap securities.
Emerging Market securities are subject to greater risks than U.S. domestic investments. These additional risks may include exchange rate fluctuations and exchange controls; less publicly available information; more volatile or less liquid securities markets; and the possibility of arbitrary action by foreign governments, or political, economic or social instability.
Investments in emerging markets bonds may be substantially more volatile, and substantially less liquid, than the bonds of governments, government agencies, and government-owned corporations located in more developed foreign markets. Emerging markets bonds can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.
Global resource investments are subject to risks associated with real estate, precious metals, natural resources and commodities and events related to these industries, foreign investments, illiquidity, credit, interest rate fluctuations, inflation, leverage, and non-diversification.
Gold investments are subject to the risks associated with concentrating its assets in the gold industry, which can be significantly affected by international economic, monetary and political developments. Investments in gold may decline in value due to developments specific to the gold industry. Foreign gold security investments involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, or political, economic or social instability. Gold investments are subject to risks associated with investments in U.S. and non-U.S. issuers, commodities and commodity-linked derivatives, commodities and commodity-linked derivatives tax, gold-mining industry, derivatives, emerging market securities, foreign currency transactions, foreign securities, other investment companies, management, market, non-diversification, operational, regulatory, small- and medium-capitalization companies and subsidiary risks.
There are inherent risks with fixed income investing. These risks may include interest rate, call, credit, market, inflation, government policy, liquidity, or junk bond. When interest rates rise, bond prices fall. This risk is heightened with investments in longer duration fixed-income securities and during periods when prevailing interest rates are low or negative.
Investments in digital assets and Web3 companies are highly speculative and involve a high degree of risk. These risks include, but are not limited to: the technology is new and many of its uses may be untested; intense competition; slow adoption rates and the potential for product obsolescence; volatility and limited liquidity, including but not limited to, inability to liquidate a position; loss or destruction of key(s) to access accounts or the blockchain; reliance on digital wallets; reliance on unregulated markets and exchanges; reliance on the internet; cybersecurity risks; and the lack of regulation and the potential for new laws and regulation that may be difficult to predict. Moreover, the extent to which Web3 companies or digital assets utilize blockchain technology may vary, and it is possible that even widespread adoption of blockchain technology may not result in a material increase in the value of such companies or digital assets.
Digital asset prices are highly volatile, and the value of digital assets, and the companies that invest in them, can rise or fall dramatically and quickly. If their value goes down, there’s no guarantee that it will rise again. As a result, there is a significant risk of loss of your entire principal investment.
Digital assets are not generally backed or supported by any government or central bank and are not covered by FDIC or SIPC insurance. Accounts at digital asset custodians and exchanges are not protected by SPIC and are not FDIC insured. Furthermore, markets and exchanges for digital assets are not regulated with the same controls or customer protections available in traditional equity, option, futures, or foreign exchange investing.
Digital assets include, but are not limited to, cryptocurrencies, tokens, NFTs, assets stored or created using blockchain technology, and other Web3 products.
Web3 Companiesinclude but are not limited to, companies that involve the development, innovation, and/or utilization of blockchain, digital assets, or crypto technologies.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
© 2024 Van Eck Associates Corporation