Every year in the market certain themes develop. Identifying a market theme is more art than science and is mainly inferred by being in tune with the day-to-day action. Here’s some examples of past themes over the years:
- 2020: Covid… the market was fixated on daily cases
- 2021: The reopening of the economy… the market paid attention to how quickly consumers got back to their daily lives
- 2022: Inflation… decades high inflation resulted in a bear market that saw stock indexes fall 20-30%
- 2023: ChatGPT/regional banking crisis… The AI chat bot was introduced to the world and sparked enthusiasm around a brand new sector of the economy
- 2024: AI/Election/Fed rate cuts… Continued excitement around AI fueled rallies in important stocks like Nvidia, and uncertainty around the election was a main talking point
What themes are emerging in 2025?
So far in 2025 we’re noticing three themes starting to develop:
- The market is trying to anticipate the impact of President Trump’s policies
- There’s a growing belief that the Fed will not cut interest rates much further
- Excitement around the AI trade has cooled
When Trump won the election the immediate reaction by the market was to buy US markets, and sell non-US markets. The logic being that Trump would adopt a protectionist stance in the global economy and enact tariffs on global trading partners.
In the graph below we chart an S&P 500 ETF (green line) and an ETF that tracks the global stock markets of Europe and Asia but excludes the US. In the two weeks that followed the election results, the S&P 500 rose 3% while the non-US ETF declined:
In mid-November, as Trump started to detail some of his tariff plans, they didn’t seem as bad as initially feared. Upon being sworn into office, Trump did not slap immediate tariffs on global trading partners, something he was expected to do. This seems to be seen by the market, at least preliminarily, as a softening of his tariff stance. While it’s just one day, the first official day of his Presidency saw non-US stocks rise greater than their US counterparts.
The Trump trade policy will be a key theme that continues to garner the market’s attention.
Changing interest rate expectations
The Fed started cutting interest rates last year and the expectation was for more rate cuts throughout 2025. However, the Fed has recently started to push back against those expectations. Last month, stocks suffered their worst decline in months as Fed Chair Jay Powell detailed a slower rate cutting cycle than initially planned. Recent reports showing persistently high levels of inflation have only done more to adjust market expectations further.
As of December 1st, the market forecast three to four interest rate cuts throughout 2025. Today, the market expects just one to two more rate cuts. These changing expectations have coincided with a sideways trend in the S&P 500, which is flat since December 1st:
The Fed’s communication around interest rate policy will continue to be something that the market is focused on. You can track market expectations for interest rate changes at this website.
The AI trade/the MAN takes a breather
We first wrote about the MAN back in the summer of 2023. The MAN stands for Microsoft, Apple, and Nvidia. These three stocks, and especially Microsoft and Nvidia, are seen as the two leaders in the AI sector; Microsoft for their large investment in OpenAI, and Nvidia for their semiconductor chips that are powering AI technology around the world. While the MAN has helped boost market returns over the last two years, the three individual stocks have been pretty mixed over the last seven months:
The relatively flat performance for these three leading stocks could be a sign that the market has entered a “wait and see” period for the AI sector. Is the growth that powered stocks like Nvidia to massive gains throughout much of the last two years going to be followed by even more growth? Or has the market gotten ahead of itself with some of its lofty AI driven projections?
While the market waits for that answer, we’ve seen performance shift in favor of smaller and medium sized companies. Smidcaps (small + mid), as they’re referred to, have not done nearly as well as the S&P 500 over the last two years, but they are outperforming over the same seven month period referenced above. The S&P 500 (green line) is up about 11%, compared to 13% and 15%, for medium and small sized companies:
We view it as a good sign that even though the AI trade has cooled off, all areas of the market have been able to keep rising.
The market will always find things to focus on and there will be no shortage of headlines in the coming months. But the things that will likely matter most will have to do with Trump’s policies, interest rates, and the impact of AI in the economy and stock market.

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