This time last year I was doing the same thing as right now.
That’s sticking my neck out and risk making a fool of myself.
Why?
I put my 2024 predictions down right here in Fat Tail Daily. You can see them here.
The market makes a habit of mocking anyone who dares to say anything definitive about the future.
That said, in hindsight, I did pretty good last year.
Aussie stocks, gold and bitcoin all hit all-time highs…as suggested. US stocks kept rolling along their merry way.
So it seems I’m on the line to repeat this for 2025!
No pressure, of course!
That said, it was easier to pull it off last year.
In the two years leading up to 2024, Aussie stocks had been so battered it was hard to see how they couldn’t recover.
It wasn’t that bad out in the world in December 2023.
Given the ASX is up this year, predicting what’s ahead proves more challenging.
But there’s no harm in trying.
Here’s my best guess as to what happens next year…
#1 Small caps outperform!
2024 was the story of the Top 50 surging back, especially the big banks. Now, valuations look full. That’s not to say you have sell or do anything dramatic.
But if you want big ‘alpha’ in 2025, my analysis says you’ll need to hunt lower down the market.
Small caps have trailed the blue chips for three years running and thrive best in a rate cutting environment.
We could get multiple rate cuts in 2025. If so, that should provide a very powerful tailwind for the small cap sector.
There is also a lot of value in the sector.
I’m excited for what could be coming here.
#2 Junior resource stocks begin a multiyear recovery
Take a cricket bat, and whack yourself over the head with it multiple times.
That’s basically what’s happened to anyone who dared to own junior resource stocks since late 2021. One estimate says they’re down 70% since.
Admittedly, there’s been a few breakout stars. Overall, though, it was best to avoid that sector.
Not now. The mining cycle has turned in their favour, especially in the gold sector.
Mergers and acquisitions could pick up from here, reviving investor interest from the big decarbonisation thematic and the brewing energy shortage to this space.
Expect more large commodity players to sniff around for cheap takeover targets too. Now’s the time to accumulate.
#3 The Melbourne property market surprises to the upside
I’m totally stealing this from my friend Catherine Cashmore. Melbourne’s property market has been a dud since the wild Covid boom.
Meanwhile, Adelaide, Perth and Brisbane have surged ahead. Now all we hear about is Victoria’s massive debt and less appealing climate.
However, population growth is still surging in Australia with Melbourne being the top drawcard for new arrivals.
Plus, the apparent value across the city relative to Sydney is around historic levels. Watch for investors to close this gap up again.
#4 Volatility picks up again
One of the most notable features of 2024 is how benign the market has been this year.
Except for a brief wobble in August, we didn’t see many big down days or wild swings this year.
It certainly makes for an orderly market, but I don’t think it’s going to continue.
Donald Trump alone could see shares gyrating all over the place. Then we have the seemingly intractable war in Ukraine, the simmering Middle East…and the ever present threat of China over Taiwan. Buckle up!
#5 Lithium stocks base after a horrid two years
It’s been a shellacking like I haven’t seen in a while. Lithium investors have been slaughtered over the last two years.
Now we have mines shutting, developments abandoned, investors fleeing and the existing producers shedding cashflow.
All in all, a typical commodity market bear market, and perfectly in accord with the cyclical nature of it all.
Now’s the time to get interested. I’m not saying buy yet. But when prices are on the floor, sentiment is terrible and only the viable are left standing – well, history says pay attention.
All we need to see is a strong lead from the lithium prices out of China.
As it is, I think the market is hunting the sector to bottom out around now, on the expectation lithium could be short by 2026 or 2027. Remember, the market looks ahead!
There you go! Some food for thought to go along with your New Year’s champagne. That’s my best crack at what happens next year.
I look forward to sharing the journey with you.
Best wishes,
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Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator
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