by Bryan Perry
January 22, 2025
After less than three weeks of trading in the new-year, the market finally got its footing last week. The year got off to a rocky start, weighed down by fear of inflation reigniting and rising long-term Treasury yields that threaten to derail the Fed’s path to get the Fed funds rate down to 2.5% in the next two years.
Last week, the equity market got a much-needed lift from lower inflation and retail sales, along with slightly higher-than-expected initial unemployment claims. As of Friday, yields on the benchmark 10-year Treasury had fallen from 4.80% to 4.60%, giving traders confidence that the bond market was stabilizing, which in turn triggered a spring-loaded three-day rally that took the S&P 500 back up to the 6,000 level.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Once the bulls got the all-clear sign from the bond market, last week’s three-day rally revealed where most of the investment capital was being allocated, providing investors a near-term road map of which themes, sectors and stocks will likely lead and outperform going forward. Quite frankly, the rally took place as most of the Magnificent Seven stocks traded laterally. This was a refreshing and defining moment, in that the market started to broaden out with large fund flows ploughing into key stocks and ETFs that are the focus of key secular themes, which – no surprise – were key themes in 2024 as well.
These themes begin again with a continuation of the massive capital investment into artificial intelligence, which embraces the building of the stack and what is inside the stack, AI-centric infrastructure software, and the AI application. This year will also see the furthering of ‘physical AI,’ which applies to automation and robotics, with the introduction of transformational humanoid technology taking on new roles.
According to International Data Corporation (IDC), in 2025, global spending on AI is projected to reach $337 billion. This incorporates investments in AI applications and infrastructure, driven by the surging growth in adoption of AI across various industries, with a significant portion = coming from enterprises embedding AI capabilities into their core business operations. In particular, generative AI is expected to see 71% growth in spending this year, reflecting improving productivity among the relevant businesses.
The building of data centers to power AI will experience significant growth in 2025. Increased demand for data center capacity has a global growth rate of around 15% per year to support the ever-increasing workloads. The hyper-scale and colocation segments are anticipated to forge ahead with more than 10 GW of data center capacity already planned for 2025 according to JLL’s 2025 Global Data Center Outlook.
In 2025, more data centers will be under construction in the U.S. than ever before, according to a new forecast from real-estate services firm CBRE, which expects 4,750 data centers to be in the process of being built in primary markets, up from this year’s record of 4,250 data centers. To put that number in context, CBRE states that, “Nearly as many data centers are currently being built as already exist in the U.S. And much of that construction is already spoken for. Amid record-low vacancy rates, a record share of construction is being leased before it’s even finished.” (Source: Sherwood)
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Rapid expansion of AI presents the ongoing challenge of power constraints and the need for innovative solutions to meet growing energy demands. The U.S. Department of Defense (DOE) projects that the transmission system will need to double in size between 2020 and 2050. To do so involves adding approximately 7.1 Gigawatts of capacity and nearly 1,000 miles of power lines across multiple states.
The year ahead will see business for engineering and construction companies flourish as the U.S. power grid is expected to undergo significant expansion. And while there is a lot of attention being paid to nuclear power, meeting the near-term demand for delivering vastly more electricity will involve the expanded use of solar and wind power, along with natural gas providing the greatest amount of capacity.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
JLL pointed to the growth prospects surrounding small modular reactors (SMRs) that are the subject of a lot of investor buzz these days. SMRs offer a more scalable approach to green power, although deployment of this technology is still in the initial stages. Regulatory push-back at the federal, state, and local level is a substantial hurdle. Public perception of nuclear risks will always be at the forefront of where to locate SMRs. Most likely, rural areas will be selected as part of these large AI developments.
These are the big themes that are in their own stealth bull markets, as this is where the greatest amount of investment capital is flowing now. Cyber-security will also be on the receiving end of heavy corporate spending, given the rising number of sophisticated cyber-attacks on large enterprises and governments.
Another theme of focus now I believe is that of the “experiential economy” that plays well for travel and tourism, live music festivals, exclusive experiences, thrilling outdoor activities, culinary schools, fitness and wellness retreats, and arts and cultural experiences. And there are other themes within healthcare, retail, precious metals, cryptocurrencies, natural disaster remediation, online gaming, private equity, financial technology, (fintech), etc.
Without trying to be too clever, or adding too many sectors, investors should consider following the big money, as it invariably leads to where the most consistent and best performing assets can be found.
All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.
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A Look Ahead by Louis Navellier
How Trump’s New Energy Policy Changes May Shock the World
Income Mail by Bryan Perry
The Market Embraces 2024 Themes For 2025
Growth Mail by Gary Alexander
The Case for Recycling These Columns on an Annual Basis
Global Mail by Ivan Martchev
We Have Been at This Crossroads Before
Sector Spotlight by Jason Bodner
Don’t Trust Any 10-Day Forecasts … About Anything
View Full Archive
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Bryan Perry
SENIOR DIRECTOR
Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.
Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry
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