12-24-24: My Six Predictions for 2025 – Part 1 (of 2)

by Louis Navellier

December 24, 2024

At year-end, it is traditional to post some predictions for the year ahead. I have six. Since I also have other news to report, I’ll split my predictions into two parts. Here are the first three of my six 2025 predictions:

Prediction #1: The Fed Will Cut Key Interest Rates Three or Four Times (not just twice) in 2025 

Wednesday’s FOMC Statement and “dot plot” signaled that the Fed expects only two key rate cuts in 2025, as they are now pivoting from focusing on jobs (unemployment data) back to controlling inflation. Their “dot plot” signaled just two more rate cuts in 2025, as there is a split between the hawks and doves emerging, so it is safe to say that Fed Chair Jerome Powell has finally lost his wish of the FOMC moving in lockstep. As a result, there is more uncertainty surrounding the Fed now, which spooked Wall Street.

In my opinion, the stock and bond market over-reacted to last Wednesday’s FOMC statement, dot plot and Fed Chairman Powell’s press conference, as traders basically eviscerated all the stock market gains that we enjoyed since the Presidential election. Chairman Powell’s flippant comment – that the Fed’s year-end inflation forecast has “kind of fallen apart” – did not inspire confidence.

One reason I expect more rate cuts next year is that global interest rates are expected to plunge due to a recession in Europe and lackluster growth in Asia. A recent Bloomberg survey forecasted that the ECB will cut its key interest rate to 2% by next June (currently, the key ECB interest rate is 3%). Furthermore, some economists predict the ECB will cut rates to 1.75% in 2025. As European interest rates decline, that should trigger a big rally in U.S. Treasuries, encouraging the Fed to cut rates more than twice in 2025.

This global collapse in interest rates is just starting, as the European Central Bank (ECB) plans to cut key interest rates four or five times in 2025 until rates are at 2% to 1.75%. Most Fed watchers and the FOMC itself does not see all these global dominos falling in the euro-zone as the recession in its largest economy, Germany, gets worse. France, the second largest euro-zone economy, is also slipping into recession. Both France and Germany are also in the midst of a political crisis and are thus “headless” until some new leadership emerges. As a result, I expect three or four Fed rate cuts in 2025 as rates collapse in Europe.

One reason that inflation is running lower in Europe than in the U.S. is that the euro-zone does not have the shelter cost component that has kept the Consumer Price Index (CPI) and Personal Consumption Expenditure (PCE) index elevated in the U.S. “Owners’ equivalent rent” (our shelter costs) rose 0.3% in November, down from 0.4% in October, but they still must fall further to push both the CPI and PCE lower. Excluding shelter costs, consumer price inflation is running pretty near the Fed’s 2% target rate.

Prediction #2: U.S. GDP Will Hit 4% in 2025 – and 5% in 2026, if We Can Grow on All Cylinders 

The U.S. is one of the few counties in the world that can keep growing due to better demographics. Most of the world is experiencing a population decline, except for Brazil, India and the U.S. We still have some pro-family regions – like the South and Mountain West – so our household formation continues to grow.

Furthermore, immigrants are more quickly assimilated in the U.S. than in Europe. This also boosts more household formation. Also, our 50 states are very competitive with one another. They are effectively economic laboratories that can stimulate economic growth as some of the lower-tax business-friendly states – like Florida, South Carolina, South Dakota, Tennessee and Texas – have demonstrated.

As a result, 5% GDP growth is possible in the U.S. – if we can grow on “all cylinders” by 2026.

The first agenda under Trump 2.0 is to end the manufacturing recession, since, according to the Institute of Supply Management (ISM), the manufacturing sector has contracted in 24 of the past 25 months. The second agenda is to end the senseless wars in the Middle East and Ukraine, so the world can benefit from a “peace dividend,” like Bill Clinton enjoyed. As soon as the manufacturing sector resumes growing, 4% U.S. GDP growth is possible, and if peace in the world is achieved, 5% annual U.S. growth is possible.

In the meantime, Europe remains headless, with its two largest economies in a recession and numerous key leadership vacuums emerging. Germany will have an election and a new chancellor in February. The leading candidate to become the new German Chancellor is Christian Democratic party head, Friedrich Merz. France is currently led by President Macron, but his party has a minority in Parliament, plus Marine Le Pen’s National Rally party has the most seats in Parliament and keeps undermining Macron, especially when it comes to spending. In fact, Marine Le Pen’s National Rally party is making budget demands that, if not accepted, could topple Macron’s fragile ruling coalition. Assuming that this euro-zone chaos persists, do not be surprised if the euro “breaks a buck” against the U.S. dollar. The fact that the euro-zone is now in a recession and the ECB will continue slashing key interest rates should further undermine the euro.

Much of this political upheaval in Europe is tied to oppressive rules imposed by the Paris Climate Accord. Farm protests all over Europe were largely inspired by regulations such as: (1) retiring 30% of land to a natural state, (2) culling herds of farm animals to reduce methane emissions; and (3) switching to organic fertilizers from chemical fertilizers. As a result, the largest party in the Netherlands is now a Farm Party. Although Europe will not likely ditch the entire Paris Climate Accord, they are expected to “kick the can down the road” by extending the deadlines that all vehicles electric by 2035 be postponed until 2050.

Europe’s green energy solutions remain cost prohibitive. In fact, higher energy prices are systematically destroying Germany’s industrial base, despite the fact that many German companies have outsourced their manufacturing to the Czech Republic, Hungary, Poland and Slovakia, with their cheaper electricity prices.

Germany also has manufacturing plants in the U.S., including Mercedes in Alabama, BMW in South Carolina and VW Group in Chattanooga, Tennessee, as well as a new Scout Motors plant in South Carolina. As the incoming Trump Administration negotiates with Europe over their oppressive tariffs on U.S. vehicles, I suspect that Trump 2.0 will push Europe to lower their tariffs and encourage them to expand their U.S. operations due to cheaper electricity prices and lower labor costs here than in Europe. In other words, the U.S. is an oasis vs. the rest of the world, so U.S. economic growth is expected to soar!

In Germany, VW Group has begun shutting down vehicle plants. Its first plant to close in Europe will be its Audi Q8 e-tron SUV factory in Brussels, which is scheduled to close on February 28^th, impacting over 3,000 workers. Audi was supposed to be fully electric by 2033, but now the company wants to retain its flexibility. Amidst rising layoffs in Germany, it is not surprising that Germany’s Ifo Institute’s business climate index declined to 84.7 in December, down from 85.6 in November. The Ifo Institute’s business climate index has declined for six of the past seven months, as Germany’s leader lost a confidence vote.

I’ve been picking on Germany here, but Brazil has been facing even worse budget problems and government chaos. Brazil has been actively striving to support its currency, the real, but with a 10% budget deficit, a President recovering from emergency brain surgery and seemingly no end in sight to their endless government spending, Brazil is apparently striving to follow Argentina, but Brazil may soon have to devalue its currency. So far this year, the Brazilian real has fallen 21% against the U.S. dollar.

When a currency is faltering this badly, it creates hideous inflation for its citizens, so although Brazil’s President Lula da Silva may have been trying to help the poor in Brazil, he is actually making their lives more miserable with inflation. Only time will tell if President da Silva will fully recover from surgery, but I think it is safe to say that Brazil is on the verge of a fiscal crisis that will likely outlive Lula da Silva.

On the war scene, Ukraine killed a senior Russia General, Igor Kirillov, the head of the Russian Armed Forces’ Radio-logical, Chemical and Biological Defense Troops, in Moscow. This brazen attack within Russia will most certainly trigger a response. In fact, deputy head of Russia’s Security Council, Dmitry Medvedev, said Kyiv was trying to “prolong the war and death” and promised “inevitable retribution” on the top military-political leadership of Ukraine. This could mean that the anticipated ceasefire that President-elect Trump is pushing has just gotten more complicated. The truth of the matter is that when both sides hate each other this much, it makes negotiations more problematic. As a result, the fighting between Russia and Ukraine may persist a bit longer. I should add that Russian oil shipments have fallen, and two tankers may have been lost during bad weather. Crude oil prices could fall in the wake of any ceasefire agreement, so Russia will likely do its best to convince OPEC+ to restrict its crude oil output.

Prediction #3: Natural Gas Will Return to Its Natural Role as a Major U.S. Energy Source 

Amidst all this European energy chaos, the U.S. has a major advantage, since the U.S. is the Saudi Arabia of natural gas. Specifically, the Biden ban on LNG expansion has ended, and Trump 2.0 is expected to boost LNG exports as well as utilize natural gas to double utility output to fuel AI data center demand.

Natural gas futures in Europe have soared on the fear of a lack of storage, as well as Russian LNG increasingly being blocked by new sanctions, so although natural gas prices are hyper-sensitive to cold winter weather, the U.S. still has excess supply and will have more supply to export under Trump 2.0’s “drill baby drill” policy. In fact, Trump has appointed a fracking expert, Chris Wright, to lead the Department of Energy. Furthermore, North Dakota Governor Doug Burgum has been nominated for Interior Secretary, so he can open up more federal land for crude oil and natural gas production.

Trump 2.0 is seen as a godsend for the natural gas industry. The Biden Administration’s attempt to squelch LNG expansion is over. The existing ban on drilling on federal lands is expected to be lifted by an executive Presidential order on President Trump’s first day. The EPA demand that new natural gas turbine electricity plants “sequester” carbon dioxide will also be lifted, which will cause a boom in new natural gas fired electric plants, so the U.S. can double its utility grid to meet the demand for AI data centers. (I should add that a “search on your phone or computer” used to account for just 2% of the U.S. electric grid, but now AI search takes double the electricity, so it is imperative that the electric grid be expanded).

As a result of this LNG renaissance, I expect to add more mid-stream companies and some new natural gas drillers, as soon as “drill baby drill” identifies the winners of this anticipated natural gas boom.

The production of crude oil should also increase, but because of the weak global demand due to sputtering economies in Asia and Europe, I am expecting crude oil prices to range from $58 per barrel to $80 per barrel in 2025. Since crude oil demand is seasonal, prices are expected to rise in the spring and decline in the fall. As a result, I may not add many integrated crude oil stocks. An exception is Exxon-Mobil, which is increasing its production in Guyana, which is the most exciting crude oil discovery in over a decade.

Naturally, as prices at the pump decline and other energy prices moderate, due to the fact that the U.S. is energy independent and boosting production, inflation is expected to moderate and put more money into consumer pockets. The green energy industry is not expected to go away, especially with Elon Musk advising President Trump, but green energy must compete with fossil fuels. Wind and solar are efficient in certain regions of the U.S., like the Texas Panhandle (wind) and the Southwest (solar), but if the U.S. is serious about green energy, it will have to build a direct current (DC) grid to transport electricity vast distances, since existing alternating current (AC) grids lose electricity the farther it is transported.

I am not that excited about the expansion of nuclear power, despite Microsoft committing to a 20-year deal with Constellation Energy to restart a reactor on Three-Mile Island. Interestingly, Constellation Energy initially shut down Three-Mile Island, since natural gas fueled power plants were cheaper.

The growing call for small modular nuclear reactors, even from Amazon and Google, may not come to fruition for a decade or more, since there are no working prototypes. However, the announcement of a small modular nuclear reactor being approved in Virginia is encouraging, but it is still several years away from being operational. Frankly, I find it fascinating that a magnet exists that can lift an aircraft carrier. It will likely be used in small modular nuclear reactors, but until the entire reactor is finished and tested, I don’t want to invest in nuclear energy, except companies that supply uranium, like Cameco Corp, (CCJ).

I’ll bring you my second three predictions for 2025 in the New Year’s Eve edition next Tuesday.

Some Important U.S. Stock Market and Economic News

Beyond these three market predictions, here is some timely stock news to consider at year’s end:

The bird flu out West has spread to cattle, so California declared an emergency on fears that it may turn into a pandemic that could spread to humans. Raw milk products have been recalled, but pasteurized products are still safe to consume. In the meantime, eggs remain unavailable at many supermarkets, so my egg stocks, Cal-Maine Foods (CALM) and Vital Farms (VITL), are profiting from the egg shortage.

The weight loss drug business, specifically GLP-1, is very exciting, as Eli Lilly (LLY) continues to capture market share from Novo-Nordisk (NVO), since Lilly’s new drugs continue to perform better. Novo-Nordisk is under pressure from the fact that subjects, in a study using its experimental obesity shot, Cagri-Sema, lost less weight than predicted. I sold Novo-Nordisk a couple of months ago, since its Alpha decayed, and its overall stock grade plunged in my Stock Grader. (Alpha is the return I calculate that is independent of the overall stock market). Eli Lilly still has a positive Alpha and remains in my portfolios, so I am proud that my Alpha algorithm provides early warning signals that help us manage our portfolios.

And finally, the Commerce Department announced last Tuesday that retail sales rose 0.7% in November, due largely to a 2.6% increase in vehicle sales. Excluding vehicle sales, retail sales rose by just 0.2%. Online sales rose 1.8%, a good sign that the holiday shopping season is healthy. Seven of 13 industries surveyed reported growth. This bullish report tells us that the fourth-quarter GDP is likely accelerating.

 Navellier & Associates owns Exxon Mobil Corporation (XOM), Cameco Corp. (CCJ), Alphabet Inc. Class A & C (GOOGL),  Amazon (AMZN), Microsoft (MSFT), Eli Lilly and Company (LLY), Novo Nordisk A/S Sponsored ADR Class B (NVO), Vital Farms, Inc. (VITL), and Cal-Maine Foods, Inc. (CALM), in managed accounts. We do not own Volkswagen AG Unsponsored ADR (VWAGY), or Constellation Energy (CEG). Louis Navellier and his family own Exxon Mobil Corporation (XOM), Cameco Corp. (CCJ), Alphabet Inc. Class A & C (GOOGL),  Amazon (AMZN), Microsoft (MSFT), Eli Lilly and Company (LLY), Novo Nordisk A/S Sponsored ADR Class B (NVO), Vital Farms, Inc. (VITL), and Cal-Maine Foods, Inc. (CALM), via a Navellier managed account.  He does not personally own Volkswagen AG Unsponsored ADR (VWAGY), or Constellation Energy (CEG).