US financial markets 2025 outlook
My outlook on the key financial and geopolitical trends for 2025, focusing on market opportunities and impacts of Trump’s policies amid global tensions and economic volatility.
Introduction
January 2025, just before Trump's inauguration, presents an opportune moment to evaluate global and financial conditions that will shape the markets this year and devise a trading plan.
Global Overview
Despite significant challenges, there are reasons for cautious optimism regarding geopolitical and economic developments. Stabilizing and achieving growth will require collaborative efforts and measured leadership. Key factors influencing markets this year include:
Overcapacity in oil and manufactured goods, weaker consumer spending, and higher unemployment, which may put downward pressure on US inflation.
Potential triggers for rising inflation, such as a rapid drop in the US dollar, slowing global logistics, monetary stimulus, and trade tariffs.
The timing of these factors will play a pivotal role in shaping financial markets and liquidity.
Financial Markets
USD Correction:
The USD appears to be nearing its peak and could see a 10% correction over the next 12 months. An additional 3% rise is possible, but further appreciation may strain the global economy.
AUD Outlook:
The AUD may recover some losses but faces ongoing challenges from China’s restrained stimulus and slower economic recovery.
Gold:
Gold, undervalued relative to the S&P 500, is likely to perform well amid global uncertainty. Its prospects may depend on increased demand from Chinese consumers diversifying away from the Yuan, which appears set to weaken in the short, medium, and long term.
Created with TradingView Bitcoin:
Bitcoin is poised to reach new all-time highs within the next six months, in line with its 4-year cycle. The cycle suggests a peak between Q2 and the end of 2025, followed by a potential pullback that historically should be in the order of 40%-80% in 2026. Regulatory developments supporting Bitcoin as an asset or reserve asset could mitigate future declines but rapid value growth in 2025 will exacerbate the pullback.
Bitcoin’s 4 year cycles (marked by vertical bars to show halving, highs & lows):
Interactive chart:
Created with TradingView US Treasury Yields:
The yield curve’s recent uninversion suggests an economic slowdown within the next 6–18 months, based on historical trends.Tax Policy and Stocks:
Tax policies favoring corporate profits are likely to benefit quality companies, especially those leveraging AI for cost savings and productivity gains.
Created with TradingView Lower interest rates—if they materialize—could support higher valuations for technology stocks and other risk assets, potentially leading to new highs on the NASDAQ.
Created with TradingView
Likely Financial Winners in 2025:
US (well ahead of others)
Turkey
Japan
Saudi Arabia
Poland
Nigeria
Likely Financial Losers in 2025:
China
Australia
Russia
UK and Europe
Global Issues
US-China Dynamics:
Increased US pressure on China could exacerbate economic challenges. Limited stimulus and "Japanification" trends further restrict recovery prospects for key trading partners like Australia.Russia and Oil:
Sanctions on Russian oil exports may benefit other producers such as Saudi Arabia and the US. Trump’s likely push for increased drilling ("drill baby drill") could create an oil surplus, benefiting importers like China and Japan while pressuring Russia. A lower oil price and restricted Russian exports could pave the way for a more enduring peace in Ukraine.Middle East:
Developments in the Middle East—such as the weakening of Iran's theocratic regime, Syria’s rebuilding efforts, a Gaza ceasefire, and stabilization in Lebanon—offer cautious optimism. However, sectarian violence and entrenched interests will remain significant obstacles. Sunni powers, particularly Saudi Arabia and Turkey, are countering Iranian influence, which could reshape regional dynamics.Peace Negotiations:
Stricter restrictions on oil exports from Russia and Iran may pressure these actors into negotiations. While Trump’s methods are polarizing, his approach could result in outcomes that strengthen his global standing. Stability in the Middle East and Ukraine could pose significant challenges to Russia and incentivize China to support a more stable global trade environment.
Financial Review of 2023–2024
The past two years were strong for US investors who entered early in stocks and crypto. Recent pullbacks, potentially linked to Trump’s aggressive rhetoric, have reset valuations. The US dollar has strengthened since November’s election, reflecting global demand. This gives Trump room to devalue the USD through tax cuts and interest rate reductions, which could support risk assets and the broader economy.
Challenges
We are in the late stage of the current economic cycle, with much of the easy growth already realized. Valuation look really high right now on the chart. But that doesn’t mean they can’t go higher in a winner-takes-most world where the US is the best asset market in the world by far. These gains can falter and disappear based on:
Liquidity issues, high interest rates, and elevated inflation expectations are pressuring asset prices.
New housing starts are declining, and unemployment rates must be closely monitored.
A black swan event arising from global tensions could destabilize markets.
My Trading Plan
Current Strategy:
I’ve used the recent market pullback to add to my positions. I was most interested in ETFs such as QUAL, QLD (higher risk), as well as assets like gold, MSTR, and crypto. If the market closes lower than the bottom of that pullback on a 2 week candle then I’ll have to consider that a failure otherwise I’ll hold for now.AUD Holdings:
I’ll hold AUD for now, as it may have temporarily bottomed. If a black swan event emerges, I’ll quickly exit AUD into USD or other hedges.Exit Strategy:
I plan to set partial exits at my first take profit points while holding the remainder to align with the expected market cycle peak in late 2025.Inauguration Watch:
Trump’s early decisions will set the tone for the year. If he signals a focus on short-term economic pain (e.g., workforce cuts without stimulus), I’ll adjust for a potential downturn. Conversely, if he stimulates the economy immediately, I expect a honeymoon rally through March, creating opportunities to sell into strength.
Closing Thoughts
This year promises to be especially chaotic, with many moving parts. Late-cycle conditions and global tensions demand caution but also offer opportunities. Expect fireworks, stay adaptable, and good luck!
Note: Nothing here constitutes financial advice.