Happy New Year! Stocks are already off to a good start, globally.
Commodities are climbing. And so are government bond yields, at least in the Western world.
It all appears to reflect expectations of a more business friendly, market-determined economic environment coming to the U.S. on January 20th.
And the political regime change in the U.S. is beginning to influence change elsewhere, as we discussed in my note last month. The populist pushback is bubbling up in Europe and in Canada (with Trudeau’s resignation today).
Like the beginning of last year, the market is expecting rate cuts this year. But unlike the beginning of last year, the expectations on how many have already been tamed by the Fed over the past three months.
With that, the easing cycle today isn’t the powerful tailwind for stocks. The tailwind is growth, driven by Trump policies — more specifically, the probability of a positive surprise on what is a very low expectation bar set by the Fed. They are looking for just 2.1% GDP growth for 2025.
The other, bigger tailwind: the new industrial revolution. It’s driven by generative AI, and continues to be in the early innings of adoption.
And we should expect the attention to this tailwind to be amplified this week, as the most powerful tech event in the world will be hosted in Las Vegas.
The big Computer Electronics Show (CES) kicks off tonight with a keynote by Nvidia’s Jensen Huang.
It was the excitement around Jensen’s CES talk last year, in early January, that sparked the big Nasdaq rally — and as you can see, it never looked back.
Last year, CES was all about “the digital world meeting the physical world.”
The CEO of Siemens called 2024 a “turning point” where real and digital worlds converge.
We should expect the clear emergence of that theme in 2025, as AI-powered robots become part of the workforce, and soon-to-be part of everyone’s daily life.