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Reuters Podcast - 2025 year in review
Wednesday, December 24th.
Amanda Cooper
Welcome to a special edition of Reuters Morning Bid, our 2025 year in review. Today, we're looking back at the biggest stories that have shaped markets this year.
Mike Dolan
From Trump's return to the White House, to the AI-fueled stock boom, and Europe's historic rearmament, the Reuters Markets team has been across it.
Amanda Cooper
I'm Amanda Cooper in London.
Mike Dolan
And I'm Mike Dolan. It's Wednesday, December 24th.
Amanda Cooper
So Mike, let's dive in. How are you feeling as we come to the end of a momentous 2025? I have to say, as one of the market's reporters, I feel like I've got definite case of whiplash after these 12 incredible months.
Mike Dolan
Well, it's funny, if you were a British soccer fan, you'd have called this a game of two halves, which is pretty much how it played out, wasn't it? A dramatic first half, much quieter and more benign second. But yeah, it was relentless in terms of news flow, that's for sure, when you have a president of the United States who is literally speaking almost 24-7. It really has been an incredible story to cover from beginning to end.
Amanda Cooper
Yeah, there's no doubt about that. And I think, as again, speaking from with my market reporter hat on, I think back to Trump 1.0 and how we all would get used to like the 8 a.m., 7 a. M. Barrage of social media posts that would often shape the day for markets. And like you said, he's almost been 24-7 these first few months in office, at least, hasn't he? That something can come at any time on any subject. And we've seen his reshaping. Global political ties, of trade ties, of a lot of the world order that's governed the state of things for decades now play out in real time across the market. I mean the dollar's been a massive focus for us this year and how sentiment has ebbed and flowed around that.
Mike Dolan
Yeah, and I think the other theme from the year very clearly has been how people were slightly misguided in thinking of this so-called TACO trade, something that became a big talking point that 'Trump always chickens out' or that he never follows through on some of his more extreme proposals or plans or statements. And I think this year that was not true. Trump has followed through on most of his election campaign in some shape or form and very little of what he planned or promised or threatened was put aside and what's interesting is I think the markets and we have to look at it from that perspective because we don't have time to go through the sheer scale of stuff that changed politically, legally, socially, and indeed everywhere around the world as a result of this presidency. But what we can look from a narrow markets perspective is that why people got suddenly so surprised in the spring. In some respects, if you look back now to last December and look at how markets were positioned after the election, they effectively thought that the whole agenda of tax cuts and deregulation, would completely run the economy hot and override any bumps that came with his trade policy. That was the assumption. As we come to the end of the year, that's kind of how it played out. And that massive disturbance in the spring proved to be actually quite temporary.
Amanda Cooper
You're right. I mean, when I think back to April the 2nd, and watching that press conference live, and of course I had my laptop open, watching the market as things were reacting, and on the day itself, there wasn't that much that happened, it was the days and weeks that followed that really sort of set the tone for us for a long time in terms of the unpredictability and so on. And I think like you say, it's interesting that we've kind of got to where he said we'd get. It just isn't perhaps as severe in some cases, I think a lot of people feared. But if you look at where the markets are, we've had, okay, the S&P 500, the NASDAQ, they've cooled off a little bit from record highs, but we're talking marginally here. Treasury yields picking up a little but, again, that kind of dramatic yawning higher of yields that we saw in the spring, even that's calmed down. We're pivoting now towards Fed cuts, changing in guard at the Federal Reserve next year. It's not exactly that everything is, I hate to use the Q word, but I think we've got to all kind of. Quiet on the market's front, but it feels like the reaction to things is a lot less explosive than it was in the spring, that a lot of the things that the market was worried about, tariffs, hideous picks up in inflation, like you say, those haven't panned out, have they? But we've had some interesting things, interesting trades, interesting dynamics, pop up along the way. I mean, I think of things like crypto, gold and silver, what's gone on in those markets, all sort of as a result of people either maybe not wanting to own quite as many dollars as they did or because they want an alternative as they seek to hedge a variety of risks or tap into opportunities.
Mike Dolan
Yeah, I mean, just to pick up on whether the US had an impact before we get into individual and we'll unpack some of those trades. But before we got there, the dominant concern, absolutely from the spring onwards, was some major global trade war, US tariffs rising across reciprocal tariffs that were called the Liberation Day as Trump called them on April 2nd. We're expected to trigger a trade war of retaliation and see world trade growth and world GDP growth jeopardized. But only this month the United Nations has put out its estimate for world trade growth in 2025 and it was up 7% to a record of $35 trillion. No one would have expected that to be the case in April when markets were going into tailspin. And the fact that that hasn't happened is partly due to the fact there wasn't very much retaliation to the United States at all In fact, essentially Europe, Japan, South Korea, Britain even Canada eventually essentially accepted those tariff rises and didn't react only China hit back and in essence We're still dealing with that story But it does it does bring us to the point where At this point of the year, the Bank of America's monthly fund manager survey, which looks at investors all around the world, has basically brought us back to where it was 12 months ago. So in December, 2024, cash levels were rock bottom. People were super bullish on stock markets and effectively expecting interest rate cuts. They still are. And they've had 20% stock market rises around the world in the interim.
Amanda Cooper
I think that brings us on to the next big theme for 2025, isn't it, the rise in the stock market, the AI trade and all things AI, powering those rallies, giving everybody cause for optimism. Of course, there's concern about is it excessive? Is there a bubble? But there's no doubt that those, it started out with the so-called magnificent seven stocks, kind of powering things. And now it's the likes of, whether it could be anything from quantum computing stocks to chip makers. And I think perhaps that's has helped sentiment as well to a large effect. I mean, it's helped kind of guild portfolios, but it's also given households a sense, this sort of like a halo effect around it, a sense of wealth. If you think that your stock portfolio is doing well, you're going to feel more confident and more upbeat about the economy. You're more likely to buy something like a car or a refrigerator or whatever, and that kind of feeds into it. I think that's probably helped quite a lot. But with every boom, there's always talk. Tipping point, the bust, the concerns, the hidden risks, what's the shoe to drop, what should we be looking for? I'm wondering how people are going to be looking at that AI trade going into next year, but there's no doubt this year, it really has been, it's taken up a lot of our attention and been a pretty fascinating story as well.
Mike Dolan
I mean, let's pull the lens out a little bit. AI has superseded everything in the macro economy for three years now, and certainly when it comes to how the stock market has performed, and as you say, there is a feedback loop that comes into the economy from a rising stock market. And these stocks now are just so large, right? It's the sheer scale of them, that they're able to take the entire Wall Street indexes higher in and of themselves. You're talking about almost a third to actually more than a third of the entire market cap of the S&P 500 is now dominated by those seven or eight stocks and the AI is clearly the story that's driving many of them and the valuations not just of those seven but I think of a lot of companies who are riding on the back of the AI transformation have got to such levels now after three years, that there's inevitable talk of a bubble. But despite that, every quarter that we get, every quarter earnings sweep that we get people expect to see somehow the end or the cresting of this whole industrial build out that's going on around it. Massive investment going on, people talking about another. Three trillion or so of infrastructure investment into AI over the next few years. About 400 billion alone this year is being spent and increasingly being funded by debt. So there are lots of issues, as we came into the end of this year, which we're starting to question. Valuation, leverage, and indeed, the scale at which that build out can actually, At what point does it start to deliver some returns? We haven't quite seen a reversal yet, but there are some questions in individual stocks, Oracle and Broadcom, and this month alone, worrying declines related to all those questions that we talked about. So next year, yet again, AI will be dominant, whether dominant in a positive way or in a negative way remains to be seen.
Amanda Cooper
It's definitely going to keep us busy and like you know we say that the AI trade has sort of burnished Wall Street but then you know you think about what about those markets that are not so exposed to that pure AI story and and you know I think it's interesting to look at how some of those have fared and some of the things that have been at play there. I mean Europe springs to mind there's been a big shift in the European market. It sort of felt like it was starting with Trump coming back to the White House and sort of laying down the law to the Europeans about. Paying for their own security, and then that's kind of let off this domino effect of events, hasn't it, that's led to something of a bit of a boom, a bit of a so-called make Europe great again trade, hasn't it?
Mike Dolan
Well, that's true. Yeah, I think actually the European story, in some respects, was the biggest surprise in terms of market movement because, and in some respects, that too was related to Trump as so much else, in part due to a signaling early in the year that the United States would not be ready to support all of European defense, and certainly unless Europe stepped up to the plate on NATO spending, which brought the whole Ukraine story very much to the fore and has been right to this moment. But if you look at where, as we referred to earlier, where the fund manager surveys were positioned in December '24, the one trade they got wrong was Europe. They were underweight Europe against the United States. And in fact, as it turned out, Eurozone stocks outstripped the S&P 500 by about 5% this year. And in dollar terms, given this surge in the euro They more than twice what the S&P has done and that was all about Germany's election, not the US election Once Friedrich Merz was elected as German Chancellor, he set about immediately a huge U-turn in German fiscal policy that saw them lift this 12 year old debt break and set about almost a trillion euros of both defense and infrastructure spending which has had dramatic impacts on german bunds on european defense sector as you can imagine which is up about sixty seventy percent this year and it's been one of the most transformative impacts around the currency market as well much as people worried about the dollar in fact a lot of that dollar movement that happened around that time was given as much as a rethink in a repricing of the euro around that in some respects one of the few non-Trump trades of the year that was really dominant and really has had lasting impact and will be a factor next year too.
Amanda Cooper
Yeah, for sure. I mean, I think we're just starting to see the beginning of that play out, you know, that spending and going into the economy and so on. It certainly feels from the people that we talked to that while the euro has got a boost from that this year, that next year, it's probably going to be a bit more dependent on what happens with the dollar, what happens with US rates and what happens in the economy as a whole.
Mike Dolan
Well, one final point I would say is that if you'd come into this year and sketched out the sort of disruption and upheaval that, you know, Trump has deliberately brought to both the United States and to the rest of the world and seen some of the market movements of wild swings that we saw, you might have thought you would have filled your portfolio with safe assets. But look at them all. The only one that's performed or the only group that's preformed has been precious metals so gold and silver and you might say that was the place to be, but pretty much everything else that might normally have fitted into as a safety trade in portfolios like government bonds, volatility, Japanese yen, or even stock sectors that might perform well in a risk-off environment. None of them did. Gold was the only one. And there is questions about whether gold itself now is in fact a bubble.
Amanda Cooper
For sure, I think we've seen a lot of those traditional correlations break down this year. Again, it's been a year of surprises, whether it's between asset classes on markets or between nations and regions have certainly shifted and changed and transformed over the course of this year, I thinks it's going to be one for the history books. For more on today's stories or on anything we've covered this year, head to Reuters.com or the Reuters app. Follow us on your favorite podcast player and if you're on a smart speaker, just ask for the latest market news from Reuters, seven days a week.
Mike Dolan
You can even ask for a Reuters subscription for Christmas.
Amanda Cooper
We'll be back on Monday the 29th of December, and until then, Merry Christmas.
