We’re back for 2025! When it comes to movements in shares, economic data drops remain the major drivers of what stocks will do, with the better-than-expected US inflation number delivering a great Thursday for local stocks. And that’s despite the numerous curve balls out there for investors this year.

For bulls, Friday on Wall Street has kept the resurgence in positivity, which made a comeback this week, so SPI futures are predicting a pretty good day at the office for Aussie stocks on Monday.

And while there are many reasons for the naturally risk-averse players to want to go defensive some time this year, I can’t get out of my calculations for my strategy for stocks that we seem to be positively affected by what I’m now tagging a ‘Trumpilocks’ recovery.

Until Donald J. Trump won the right to rule again in the US, we were banking on what looked like a Goldilocks recovery, that is, no recession and lowering inflation, helped by the positive shocks from Artificial Intelligence (AI). There was also optimism that China would start to grow faster and that made me predict we could expect at least a 10% gain for our market, which was me being conservative.

The only incalculable issues in my game plan for stocks for 2025 was what the Middle East and the Ukraine wars could throw at us. However, given how markets have responded to these threats for two years, it wasn’t hard to look past them, with a little reservation.

My expectations were dominated by a belief that interest rate cuts here would help companies that were punished (both business-wise and in terms of their stock prices) because lower rates should mean less costs, as well as more customers spending, which had to help corporate bottom lines.

That’s why I tipped the likes of the top 20 stocks such as CBA, Wesfarmers and others would lose ground, while mid-cap and small companies would gain, as fund managers took profits from the bigger outfits to buy into relatively smaller companies. It’s why I liked EX20 that has stocks numbered 21 to 200 in the ASX 200 index.

The overall index is up 3.4% over the past six months while EX20 has put on 5.8%, but it should do even better when rates eventually fall here in Australia.

This explains why I want to remain long stocks at least to mid-2025. However, I must accept that the US market (as read via the S&P 500 that has zoomed about 29% higher over the past two years) could easily go into a correction this year. This would be a headwind for our market.

In the best-case scenario situation, our positives, hopefully from lower rates and an improving Chinese economy, would outweigh the negatives from Wall Street. This explains why I can see an OK year ahead for us.

Of course, if Trump’s lower taxes and less regulation, along with a less-than-aggressive approach on tariffs (which was suggested as probable this week from US news sources) materialises, it has to be great for stocks.

Then, if all this is coupled with the possibility that inflation remains lower in the US than was thought a few weeks ago, we could also have tailwinds from Wall Street adding to our own “you beauty” breezes for stock prices.

I can’t easily discount the ‘Trumpilocks’ effect, even if it seems rational to be on the lookout for potential problems for stock prices going forward. On the subject of problems, the news that a Middle East ceasefire is happening suggests another curve ball for shares might not be thrown at stock players in the year ahead.

That’s my story right now. You can expect to be the first to know if I change my mind. But what does AMP’s Shane Oliver see in his crystal ball?

In a nutshell, this is his take on the year ahead:

1. 2025 is likely to see positive returns but after the strong gains of the last two years, it’s likely to be more volatile and constrained, particularly as Trump returns with populist policies. A 15% plus correction is likely along the way.
2. We expect the RBA to cut the cash rate to 3.6%, with the first cut looking like it could be in February, the ASX to return around 7% and balanced super funds to return around 6%. Australian residential property prices are likely to soften further ahead of support from rate cuts.
3. The key things to watch are: interest rates; recession risk; a likely trade war; China; and the Australian consumer.

To the overnight action and ahead of President Trump’s inauguration on Tuesday our time, Wall Street has seen all four most-watched indexes all head higher on Friday, with the Nasdaq the biggest gainer. This has been the best week for US stocks since November, with gains in the 3% territory ahead of the close. While the ‘Trumpilocks’ factor is still in operation on the New York Stock Exchange, the specific game-changers were two good reads on inflation.

Both core inflation and the Producer Price Index (PPI) came in less than expected. The market loved that the strong job reports we’ve seen recently hasn’t been cooking up higher inflation. Helping stocks were strong earnings from Goldman Sachs, Citigroup and JPMorgan Chase, with gains in the 6-10% region for the week!

CNBC reported the following on this market comeback: “The better-than-expected economic data earlier this week has helped revive the goldilocks narrative for equities, and likely prompted some re-risking, Barclays strategist Emmanuel Cau wrote in a Friday note.”

But I’d rather see it more as a ‘Trumpilocks’ tale.

To the local story and our S&P/ASX 200 rose only 0.2% for the week to finish at 8310.40, which means since late December when we went on holiday break, our market was up 1.3% or so. We need to see a great CPI read at the end of the month and a greater belief that a mid-February rate cut is a chance to get our stock prices really moving.

Big star stocks this week with 5% plus gains were:

1. Megaport up 11.24% to $7.52.
2. Lovisa sparkled 13.27% higher to $29.28.
3. Telex Pharmaceuticals rose again, up 11.63% to $26.59.
4. Neuren Pharmaceuticals up again, rising 11.39% to $13.20.
5. Star up 27.7% but it’s only 14 cents and is a pure gamble!
6. Liontown Resources powered up 16.51% to 64 cents.

On strugglers this week, none of the big names gave up 5% plus, which is a surprising revelation but maybe it’s a good omen!

What I liked

1. US inflation, with the core number slowing to 3.2% in December, which was less than the predicted 3.3%.
2. US headline inflation was up 0.4% for the month but 2.9% for the year.
3. UK inflation was less than expected, adding to the better inflation outlook for the global economy.
4. The Israel/Gaza ceasefire.
5. China’s GDP growth hit the target of 5%. Let’s hope Beijing can keep it up for 2025 and beyond.
6. The Melbourne Institute’s Inflation Gauge for December points to a further fall in trimmed mean inflation as measured by the ABS.

What I didn’t like

1. Those 56,300 good job numbers locally that makes a rate cut next month harder to deliver. That said, the fact that there were 80,000 part-time jobs while 23,700 full-time jobs disappeared has to be a concern.
2. The latest Westpac/Melbourne Institute consumer sentiment survey fell for the second month in a row.

It’s good to be back!

Welcome to another year with the Switzer Report. We all look forward to giving you our best insights into what’s likely to happen to stocks and other investments in 2025.

And with President Donald Trump set to take power on Tuesday, we’re certainly expecting some thrills and spills. Hopefully we’ll make calls ahead of any of Donald’s actions that might help or hurt your portfolios.

Onwards and upwards!

The Week Ahead

Top Stocks — how they fared

Most Shorted Stocks

ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table shows how this has changed compared to the week before 

This from Bloomberg on Trump tariffs:

“Copper extended this year’s rally as the incoming Trump administration is said to consider slowly ramping up trade tariffs, rather than imposing sizable levies in one go. The approach is aimed at boosting negotiating leverage and avoiding a spike in inflation, according to people familiar with the matter. That stirred some optimism in Asian share markets and weighed on the dollar, making commodities priced in the currency more attractive for many buyers.”

(This is good news for our material stocks, so let’s hope Bloomberg is on the money!)

Chart of the Week

Unemployment rose from 3.9% to 4.0% in December, but jobs created were 56,300 compared to the economists’ guess of 15,000! However, of the jobs created 80,000 were part-time, while full-time jobs lost were 23,700. This is not a sign of an over-confident economy and could be telling us that the job market is about to worsen for anyone wanting full-time work. This could make a February interest rate cut easier to accept by the RBA board.

Disclaimer

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.