The GraniteShares 2025 Market Preview
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The U.S. equity market has been kind to investors over the past two years, especially those who have been overweight to tech, growth and large caps. After weathering the most aggressive Fed rate hiking cycle in history, inflation has mostly normalized, and the economy has remained resilient throughout. It seemed unlikely early on, but the Fed may have actually pulled off the soft landing after all!
U.S. stocks are on pace for their second consecutive year of 20%+ returns (the S&P 500 is up 25% year-to-date through November 25th). That may not sound terribly impressive on the surface, but back-to-back 20%+ years have only happened a handful of times over the past century. This would also be the first time in the 2000s where this occurred.
A lot of market pundits are tempering their expectations for 2025 based on the returns of the past two years. History shows that U.S. stocks can continue to build on significant gains over an extended period of time. It all comes down to current conditions, however, to try to determine how any individual situation will play out.
We feel that current conditions are positive enough that the S&P 500 and Nasdaq 100 can continue to achieve new highs in the coming year. That includes the big tech and magnificent 7 names that have already been leading the way. Stock index like S&P 500 and Nasdaq 100 is a collection of shares that represents the performance of a specific sector, exchange, or economy. That includes the big tech and magnificent 7 names that have already been leading the way. (Investors cannot directly invest in an index).
Here are four of the major narratives that we’ll be watching in 2025 that we feel supports our view.
Liquidity Favors Further Gains for Equities
There are many instances in recent history where risk asset prices have responded positively to added liquidity in the system. Most recently, it was the trillion-dollar COVID stimulus package from the government that helped lift the S&P 500 to a new all-time high a mere five months after it crashed more than 30%.
It’s unlikely we’ll see that level of fiscal support again, but we feel an increase in liquidity is more likely than not. If Donald Trump follows through on his policy plans, which include tax cuts for households & corporations and deregulation (along with at least a couple more rate cuts from the Fed in the background), consumers and businesses are likely to end up with more cash in hand.
After the Tax Cuts & Jobs Act passed in late 2017, corporate earnings for the S&P 500 jumped more than 20% in 2018. We would need to see what a tax cut package in 2025 could look like, but it could easily be the catalyst that pushes stock prices higher.
Recession Doesn’t Appear to Be Imminent
The street has been talking about the threat of recession for a while now. While there are certainly some warning signs out there that could be viewed negatively, we’re just not seeing a U.S. economy at high risk of recession in the near future.
If we use GDP growth as our barometer of economic health, not only does it not look like the economy is slowing, but it also looks like the economy is still humming.
Given current trends, we don’t expect to see an economy that experiences a significant slowdown in the coming year, especially given our belief that liquidity should improve as detailed above. Even if GDP growth were too slow to a 2% annualized rate, that would still be more than healthy enough to create the opportunity for stocks to generate further gains.
The Labor Market Is Tight & Personal Spending Is Strong
Speaking of current trends, these two factors, which are heavily influential in assessing the state of the economy, still look good.
Of course, it’s not been an environment that has benefited everyone equally. There are a lot of people needing to work two jobs in order to make ends meet and many are dialing back their discretionary spending in order to get by. However, the 30,000-foot view suggests that conditions might still be positive and the foundation for future growth still seems sturdy.
Let’s take a look at the labor market first.
Non-farm payroll growth is definitely slowing, but the warning sirens generally don’t go off until we see multiple months of negative job growth. Even over the past six months, which have featured some of the slowest growth since the COVID recession, the economy is still averaging around 100,000 jobs added.
The same story applies to personal spending.
Since the COVID recession, there have only been three months where personal spending was negative month-over-month. Two of them occurred within a year of the recession. The third happened in early 2023 (and it was only -0.1%). Quite simply, consumers are still spending at a pretty steady rate, and we have yet to see any meaningful signs that it could slow down soon.
If consumers are spending and the labor market is continuing to add jobs, that’s often a strong sign that economic expansion and higher stock prices can come with it.
The AI Revolution Continues
Artificial intelligence has been the greatest technological advancement since the advent of the internet. The world has already experienced large-scale changes in how we shop, how we create, how we communicate and how we learn all through AI. And we’re still in the very early stages! Many of the world’s biggest companies are spending heavily to develop their own solutions but are already seeing big growth in their cloud businesses.
From an investment perspective, one of the most attractive features of the magnificent 7 stocks, which figure to become the industry heavyweights in this space, is that they really aren’t that expensive. NVIDIA, which has been perhaps the biggest AI success story to date, still trades at just 32 times next 12 month’s earnings. Microsoft and Apple also trade at roughly the same valuation. This may be elevated by historical standards, but we feel it’s not out of line given the potential growth trajectory. There’s still much opportunity in this space.
Final Thoughts
We feel optimistic about the stock market in 2025. Elevated inflation, the impact of a new presidential administration and geopolitics all present wild cards that shouldn’t be ignored, but the backdrop of healthy economic growth, low unemployment and a resilient consumer should create upside potential for stocks.
We think that our lineup of leveraged ETFs allows investors outsized exposure to these themes and are a great way to potentially enhance shareholder returns. The GraniteShares 2x Long NVDA Daily ETF (NVDL) offers leveraged exposure to NVIDIA, one of the leaders of the AI revolution. The GraniteShares Nasdaq Select Disruptors ETF (DRUP) can give investors broader exposure to the innovation theme without concentrating in just a single company. The GraniteShares HIPS U.S. High Income ETF (HIPS) could be a great choice for investors looking for high yields in their portfolios.
If you’re looking for an easy way to add gold exposure to your portfolio, consider the GraniteShares 2x Long NVDA Daily ETF (NVDL).
Leveraged ETFs by GraniteShares
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