Investors should brace themselves for a slowdown in growth in 2025, following two years of an impressive 20% increase in the benchmark index, as per BTIG analysts led by Jonathan Krinsky.
Despite 2024 concluding on a somewhat bleak note, all the major US indices reported substantial annual increases, with the S&P 500 marking its best performance since 1997-1998.
Optimism was largely driven by the Federal Reserve’s decision to start reducing interest rates from their historically high levels. Policymakers have been optimistic about inflationary pressures declining since they peaked in 2022, but they have also pointed out that this trend has somewhat stalled in recent months. Jerome Powell, the Fed Chair, announced during a press conference last month that while the existing policy is effective, the central bank will now proceed more cautiously with further reductions.
The incoming administration of President Donald Trump, along with several victories for other Republican candidates in the crucial November elections, has instilled hope for a future of lax regulations and tax cuts for businesses. However, the uncertainty surrounding Trump’s plans to introduce strict tariffs and carry out widespread deportations, and the potential implications on inflation, continues to be a concern.
In other news, the surge in interest around artificial intelligence has led to a significant increase in the stocks of several companies involved in this emerging technology. Nvidia, in particular, saw a substantial increase in its market capitalization in 2024, thanks to the soaring demand for its AI-centric chips across various industries. The company added over $2 trillion to its market value in 2024, ending the year at $3.28 trillion, making it the second most valuable listed company in the world.
Jonathan Krinsky of BTIG pointed out that while the equity markets in the first half of 2024 were primarily driven by the surge in stocks of mega-cap companies like Nvidia, investors had predicted a wider distribution of these gains once the Fed began cutting rates.
However, Krinsky highlighted that the breadth of the market, as measured by the percentage of stocks in the Russell 3000 index trading above their 200-day moving average, reached its peak in mid-July. By the end of December, less than 60% of the components in the S&P 500 were trading above their 200-day moving average, marking the weakest level since 2023.
According to Krinsky, this breakdown in market breadth is either a warning sign or an opportunity. He suggested that the recent divergence might indicate some problems early in the new year and that some correction is likely.
He further commented that “after an initial shakeout,” there could be “some upside in the cyclical/value trade,” as long as macroeconomic data continues to be robust. He added that while this might mean a less dovish Fed, strong data should ultimately be bullish for equities in the long run.
Considering this perspective, here are some of BTIG’s top picks for the first half of 2025: Bloom Energy Corp, Expedia Inc, Globus Medical, Health Equity, On Holdings, Regency Centers, Block Inc, and Verona Pharma PLC.
