Now that 2024 is coming to an end, it’s easy for investors to sit back and look back at the last 12 months and the gains they’ve achieved. However, getting too comfortable in the stock market usually leads to a loss of control of the game just when investors need to be most focused. It’s important to start 2025 off on the right foot, as a profitable first quarter could give investors the confidence they need to pursue more of their ideas.
For this reason, investors need to be aware of the underlying themes that could dominate the overall market in 2025 to steer their portfolios in the right direction. These topics include fundamental and technical trends leading investors to three market areas that have the potential to generate huge returns.
Starting with value stocks, this is where the relationship between iShares S&P 500 Value ETF NEW SIRKA: IVE And iShares S&P 500 Growth ETF NYSEARCA:IVW comes into play, which could soon lead to higher prices for value stocks. Then, as the economy heats up again due to lower interest rates, the energy sector will be followed through the Energy Select Sector SPDR Fund. NEW SIRKA: XLE. Finally, with all these themes playing out, overseas Chinese stocks such as Alibaba Group New York Stock Exchange: BABY And iShares MSCI China ETF NASDAQ: MCHI.
Value stocks will take over in 2025
iShares S&P 500 Value ETF Today
iShares S&P 500 Value ETF
(As of 11:54 a.m. ET)
- 52 week range
- $170.13
▼
$206.63
- Dividend yield
- 1.57%
- Assets under management
- $36.69 billion
When investors look at spreads between value stocks and growth stocks over the past five years, it becomes apparent that value stocks are at cyclical lows relative to growth stocks, and this is usually related to the business cycle. As the cycle resumes, consider how the Federal Reserve (Fed) has once again begun a cycle of lowering interest rates.
However, interest rate cuts typically come into effect when the economy is doing poorly and the Fed’s announcement creates a level of uncertainty that can lead to market volatility. This volatility will lead to a redirection of capital into safer stocks, such as the biggest brands in their respective industries.
This article includes a list of value stocks, including discount stocks such as PepsiCo Inc. NASDAQ: PEP, Nike Inc. NYSE: FROMand even ASML Holdings NASDAQ: ASML. Aligning portfolios to this view could pay off in the coming months of 2025.
If investing in individual stocks seems daunting for some, tracking the broader value of ETFs may be the best way to find alpha in the stock market in the coming quarters.
Buffett’s opinion is always a good opinion
SPDR Energy Select Sector Fund Today
Select Energy Sector SPDR Fund
(As of 11:58 a.m. ET)
- 52 week range
- $78.98
▼
$98.97
- Dividend yield
- 3.80%
- Assets under management
- $33.29 billion
There’s a reason Warren Buffett decided to buy up to 29% of the stock Occidental Petroleum Co. New York Stock Exchange: OXY within a year: He knows that the risk-reward ratio in this sector is the best. As the economy recovers from new interest rate cuts, some industries will create more demand for oil to help these stocks soar again.
The relationship described between growth and value stocks has always been a mirror image of oil prices. As costs lag behind growth, low oil prices create an easier and more flexible business environment.
The opposite is true: When valuations start to outperform, it’s usually because high oil prices make large-cap stocks with economies of scale more attractive because they can more easily diversify costs through international operations and exposure. That’s why Wall Street analysts see so much upside potential in stocks like Transocean LLC. NYSE: INSTALLATIONSitting at the top of the oil value chain, the consensus price target is $6.25, which is 77% above today’s share price.
If investors haven’t realized it yet, the common thread is that energy and value stocks could outperform in 2025, namely the lower dollar index. A lower dollar will also help a completely different set of stocks in 2025, this time around the world.
It’s time for Chinese stocks
iShares MSCI China ETF today
iShares MSCI China ETF
(As of 11:58 a.m. ET)
- 52 week range
- $35.58
▼
$59.78
- Dividend yield
- 2.25%
- Assets under management
- $5.58 billion
A weaker dollar will boost the price of any stock or commodity quoted in dollars, so the bullish themes behind stocks and oil stocks will directly favor Chinese stocks. A weaker dollar has historically been a catalyst for stocks like Alibaba and the broader China ETF.
This time, however, other major players in the Chinese economy may also take off, such as Nio Inc. New York Stock Exchange: NIO And SDA Holdings Inc. NASDAQ: Traffic ruleswhich may fall into the value category for the Chinese stock market.
Knowing this, it’s no surprise that Barclays analysts have reiterated an “overweight” rating on Alibaba shares for November 2024, setting a price target of $130 per share, suggesting upside potential of up to 52% from where the stock trades today.
Before you consider the iShares MSCI China ETF, you should hear this.
MarketBeat tracks Wall Street’s top-rated and best-performing analysts daily and the stocks they recommend to their clients. MarketBeat identified five stocks that top analysts are quietly whispering to their clients to buy now, before the broader market catches on… and the iShares MSCI China ETF wasn’t on the list.
While the iShares MSCI China ETF currently has a Hold rating among analysts, the top-rated analysts think these five stocks are Outperform Buys.
View five stocks here
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