- Primate Newsletter
- Posts
- Market Uncertainty in 2025
Happy Monday! As I’m writing this, I’ve been up for over 24 hours, so please excuse any typos or grammatical errors. I also want to wish you all a Happy New Year and hope you had an amazing time with friends and family during the holidays.
2024 was a year marked by continued big tech growth, advancements in AI, and algorithms increasingly vying for our attention. As we step into 2025, the year has already started off on an interesting note with Canadian Prime Minister Justin Trudeau resigning from his position. This development adds yet another layer to the “uncertainty crisis” we are likely to face this year.
As I continue writing on little sleep, I’ll share my views on the financial markets as we head into a tunnel that, for now, doesn’t seem to have a clear bright light at the end.
The Data
"Without data, you're just another person with an opinion." – W. Edwards Deming
The overall U.S. economy has actually been in a better spot than you might think. GDP has continued to rise (no surprise there), with Q3 of 2024 growing at an annualized rate of 3.1%, outperforming other G7 countries. While the unemployment rate has shown some signs of increasing, it has remained relatively steady at around 4%. Inflation, though somewhat controlled, has been persistent—primarily driven by housing and shelter, which remain significant contributors. Finally, consumer spending is still holding up, but as we head into 2025, it’s beginning to show signs of slowing down.
Artificial Intelligence Valuations
Nvidia (NVDA), the AI leader, is currently worth over 11.7% of the total GDP, which, when you think about it, is pretty crazy. You might be tempted to short the market right now, and while that could work, the reality is that people have been trying to short NVDA for two years now.
Beyond Nvidia (NVDA), there have been other ‘smaller’ companies—and I say smaller because the money they’re making doesn’t necessarily relate to their valuation. We’ve generally been witnessing insane price-to-earnings ratios for many companies, like Palantir (PLTR), and more recently, quantum computing stocks like IonQ (with a $10 billion market cap) and QBTS (with a $2.5 billion market cap).
The truth about valuations in today’s world is that they don’t work the same way they did 20-30+ years ago. The markets are now heavily driven by narratives and momentum. Before the internet, people reacted after the markets swung in either direction, and that’s what created the narrative behind the markets. But now, it seems the narratives are being created even before the swings, which leads to huge mispricings in valuations.
The quote, “Markets can remain irrational longer than you can remain solvent,” remains as true as ever, especially in today’s financial markets.
And because of this, I believe it adds to the uncertainty that lies ahead in 2025, which I will discuss.
The Uncertainty
When it comes to uncertainty, it’s always best to keep moving forward, or at least try your best. The common human reaction to uncertainty is fear, and fear leads to irrational decision-making, which is one of the reasons why markets—though efficient for the most part—can be highly inefficient at times.
As we head into 2025, we face a few uncertainties ahead:
President Trump will be taking office with new policies that could either help the economy or further exacerbate already troubling factors like inflation.
The Fed is entering a new cycle of cuts while keeping rates tight, as they want to play the inflation game cautiously.
Extreme valuations in major tech stocks and narrative-driven, risk-on assets like AI and memecoins (such as “fartcoin”).
Only 17% of stocks are out performing the S&P 500.
These are just a few examples, but they are important because of the narratives they hold and the stories they tell and will tell. As I mentioned before, in my opinion, narratives are one of the main factors that drive financial markets (not the economy).
For example, take the election of President Trump and how it affected the markets when he won. When he won, the markets rallied—not based on any statistical data or proof of his new policies, but based on the narrative of what could happen under his policies, rather than seeing it in action. This is the reason why uncertainty will arise over time: the expectations may not align with reality.
Tradingview
And something important to note, if I haven’t made it clear already: the markets do NOT like uncertainty.
The Point?
My main point in this writing is not to spread fear or suggest that I believe the markets are headed for a financial crash, but rather to spread a word of caution. Ahead of us in 2025, we have many uncertainties that we will overcome, as we tend to always do. However, it’s important to have a firm grasp of reality.
Markets have been trending higher since October 2022, coming off the bottom of the “inflation crisis,” and it’s been a nonstop rise. What’s dangerous, as I mentioned about algorithms, is that they show you content you engage with—content that captures your attention and keeps you busy. This prevents you from seeing the reality of the uncertainty ahead. Historically, the markets tend to get upset with uncertainty, most recently in July with the yen trade with Japan.
To end, no one knows the future. You have Nobel Prize-winning economists on both sides of the argument. At the end of the day, it’s a data/probability game that involves the practice of managing risk.
I hope you find this write-up helpful, and I wish you an amazing 2025.
To my traders: trade safely, manage risk, and live to fight another day.
Reply