2024 was dominated by two themes, AI and geopolitics, which had profound impacts on the markets and economy. For 2025, we believe these mega forces will continue to be at the front and center, but the backdrop is shifting, creating new risks and opportunities for investors over the next twelve months and beyond. In the coming year, we are looking at three important potential catalysts driving thematic investment opportunities.
The first, is the impact of a "lower rate" environment. After 3 years of rising and higher rates, the beginning of a rate-cutting cycle could take pressure off long-duration assets, including companies that depend on floating rate debt, and non-cash flowing assets. We believe this presents new potential tailwinds in medical innovation as well as bitcoin.
The second is in building the physical economy. While much attention is centered on Presidential election results, the reality may be that the biggest opportunities for major policy change are where there has been political consensus. Rebuilding the physical economy, infrastructure, manufacturing, and housing, may be the themes better poised to benefit at all levels of government, following the election.
And last, but certainly not least – technological innovations. While likely still early in the GenAI revolution, ever more powerful chips, larger data centers, and more sophisticated models are combining to drive meaningful growth in AI capabilities. 2025 could be a pivotal year for technological progress and adoption in AI tech.
We believe investors must consider these themes and how they may impact their portfolios in 2025 and beyond. For further insights, explore our full 2025 Thematic Outlook at iShares.com.
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