Q1 2025 Update: Navigating Market Trends
Welcome to our Q1 2025 update.
Amid ongoing geopolitical uncertainties and evolving U.S. and international trade policies market volatility remains a constant challenge.
Within this turbulence, we remain steadfast in providing clarity, equipping you with the insights needed to understand global events, and help you make sound investment decisions aligned with your long‑term financial goals.
We will dive into six key themes—from the intriguing “Benjamin Button Economy” , industrial revival, breakthrough developments in AI and health care, and a time-test reminder for market uncertainty and volatility.
We are here with you and for you!
1 - Welcome to the Benjamin Button Economy
Economic cycles typically follow a well-defined progression, moving through phases of expansion, peak, contraction, and recovery. However, the current U.S. economy appears to be defying convention, shifting from what was expected to be a late-cycle slowdown back into a mid-cycle expansion. This unusual reversal - that has been coined the “Benjamin Button Economy” - presents significant implications for investors, particularly as it extends the timeline for potential economic downturns.
Several key factors are fueling this shift. Corporate profits are on the rise, credit demand is accelerating, inflationary pressures are moderating, and monetary policy has moved toward a more neutral stance. These conditions, which emerged throughout 2024, suggest that the U.S. economy could sustain its current expansionary phase for several more years, potentially delaying any recessionary risks until at least 2028.
From an investment perspective, this suggests a constructive environment for equities. Historical data indicates that stock market returns tend to be strongest during mid-cycle periods, averaging significantly higher gains compared to late-cycle phases. With the business cycle effectively resetting, the potential for sustained corporate earnings growth and stable economic conditions may provide a more favorable outlook for investors in the coming years.
2 - Putting Tariffs into Context
In recent months, tariffs have been at the forefront of heated debates. While some argue that they are a guaranteed path to economic prosperity, others claim that they are the inevitable route to financial collapse. Whatever one’s opinion on the matter, tariffs certainly have a rich history of functioning as both economic instruments and political tools.
Since the port of Piraeus first imposed levies to fund the ancient Athenian government, tariffs have long been used to shield domestic industries, correct trade imbalances, and generate revenue. However, these measures often come with the trade-off of significant market volatility and geopolitical uncertainty.
Rather than partake in partisan debates, we prefer to provide a very high level, four-box framework that intends to clarify tariffs’ diverse objectives and potential long-term impacts:
● Decoupling: Tariffs under this category are designed to reduce reliance on single-source supply chains—especially from countries like China. This strategy aims to shift manufacturing activity back domestically, enhance local production, and reduce geopolitical risk, potentially leading to long-term structural changes in supply chain organization.
● Rebalancing: These tariffs are applied reciprocally with traditional trading partners such as Europe, Japan, Mexico, and Canada. The primary goal is to correct trade imbalances by fostering more equitable import-export relationships. While this approach can bolster domestic industries, it may also trigger retaliatory measures from trading partners.
● Negotiating: Tariffs in this category act as a bargaining chip to pressure other nations into supporting specific policy objectives, such as stricter border security or enhanced controls on illicit activities. Typically intended as temporary measures, they can cause short-term market volatility as expectations adjust with evolving negotiations.
● Funding: In this scenario, tariffs serve as a revenue tool to support government fiscal priorities like infrastructure spending or tax reforms. By generating additional income, they help offset other policy costs, though they can also contribute to higher consumer prices and reduced corporate profit margins over time.
Understanding these four dimensions is vital for assessing how tariff policies might influence market dynamics and investment opportunities. As policy shifts continue to create both challenges and opportunities, this framework provides a structured lens to navigate uncertainty. While short-term volatility remains a concern, a strategic, long-term focus will be essential in adapting to the evolving economic environment.
3 - Can the Industrial Renaissance Fuel a New Era of Growth?
From manufacturing hubs in the Midwest to high-tech corridors in the Southwest, the U.S. is experiencing an industrial revival driven by massive capital investment. Companies across industries are committing billions to new infrastructure, reshoring production, and modernizing supply chains, creating a surge in economic activity and long-term employment opportunities.
A prime example is Taiwan Semiconductor Manufacturing Company, which is investing $65 billion to build a state-of-the-art chip fabrication facility in Arizona. This project is expected to generate thousands of skilled jobs in manufacturing and construction while bolstering the U.S. semiconductor supply chain. Similarly, Eli Lilly’s $4.5 billion investment in Indiana aims to establish a cutting-edge drug development and production center, expanding domestic pharmaceutical capabilities and enhancing the life sciences sector.
While high-profile projects capture headlines, a wave of smaller scale yet equally impactful investments is unfolding across the country. Companies in industries such as electric vehicle production, biotechnology, and renewable energy are ramping up domestic operations, contributing to a structural shift in U.S. manufacturing strength. Government incentives, favorable trade policies, and growing demand for domestically produced goods are all reinforcing this trend.
This resurgence in industrial investment isn’t confined to the United States. Across Europe, the rapid expansion of data centers, increased demand for air travel, and the push for renewable energy solutions are driving capital expenditure at an unprecedented pace. The European Union’s commitment to energy independence and infrastructure modernization has positioned industrial giants in Germany, France, and the U.K. to benefit from long-term growth.
In emerging markets, nearshoring is reshaping global supply chains. Companies are shifting production closer to key consumer markets, leading to the construction of new trade hubs in Mexico, Southeast Asia, and Eastern Europe. These regions are increasingly attracting investment as businesses seek more resilient and cost-effective alternatives to traditional manufacturing powerhouses.
The ongoing industrial renaissance could represent a multi-decade investment opportunity. Companies with strong footholds in industrial development, infrastructure, and advanced manufacturing technologies are well-positioned to benefit from this transformation. The shift toward regionalized supply chains, increased automation, and sustainability-driven innovation will continue to create attractive investment opportunities across various sectors.
While economic cycles will influence short-term market performance, the fundamental drivers of this industrial expansion remain intact. Strategic capital allocation in industrial and infrastructure-related sectors may provide long-term value as the global economy enters a new phase of growth driven by technological innovation and geopolitical shifts in trade.
4 - Will the AI Megatrend Boost Stocks for the Next Decade?
Artificial intelligence has captivated both investors and the broader public, sparking visions of a future reshaped by intelligent machines. While AI’s long-term potential is seemingly infinite, the initial enthusiasm may have led to short-term overestimations of its impact.
As with past technological megatrends—such as the internet, smartphones, and cloud computing—AI is likely to follow a pattern of early excitement, tempered expectations, and, ultimately, lasting transformation.
One of the most challenging aspects of forecasting AI’s long-term growth is measuring the value of improved intelligence itself. AI’s applications are vast, spanning automation, advanced analytics, and problem-solving across industries.
However, despite the ambitious promise, several resource constraints are emerging that could impact the pace of adoption:
● Copper Shortages: AI infrastructure, particularly data centers, requires significant amounts of copper for power transmission, cooling systems, and overall structural needs. As an example, a $500 million Microsoft data center near Chicago that requires over 2,100 tons of copper. With AI-driven demand projected to reach one million tons in the U.S. alone over the next eight years, concerns about global copper shortages are mounting.
● Rising Power Consumption: AI’s computing requirements are extraordinarily energy intensive. By 2030, data centers could consume as much as 9% of total U.S. electricity output—more than double current levels. This increasing demand poses challenges for energy infrastructure, particularly in states where supply constraints already exist. While nuclear and renewable energy sources may eventually fill the gap, the near-term strain on the grid could slow AI’s rollout.
● Capital Equipment Constraints: The expansion of AI infrastructure depends on large-scale investments in advanced cooling systems and energy-efficient technologies. The demand for gas turbines, backup generators, and industrial cooling solutions has skyrocketed, leading to supply shortages for critical capital equipment manufacturers.
● Shortage of AI Talent: While much attention is given to AI replacing jobs, the industry is simultaneously facing a shortage of specialized engineers who can develop and deploy AI at scale. A recent survey found that 60% of public sector IT professionals see AI expertise as the biggest barrier to implementation. Without skilled professionals to guide its adoption, AI’s widespread rollout could take longer than anticipated.
While these bottlenecks may slow AI’s immediate expansion, they also create new opportunities in unexpected sectors. The industrial economy—particularly companies involved in mining, utilities, energy infrastructure, and capital equipment manufacturing—stands to benefit from rising demand for physical resources necessary to sustain AI growth.
As AI adoption evolves, it is likely to move through two distinct phases: an initial, hype-driven cycle focused on consumer applications and advertising, followed by a more measured enterprise adoption phase that unfolds over the long term.
5 - Drug Discovery is Driving Health Care’s New Golden Age
Breakthroughs in drug discovery are ushering in a new era for the healthcare sector. With advancements in biotechnology, precision medicine, and innovative clinical approaches, the industry is poised for transformative change. This golden age is characterized by rapid developments in treatments and therapies that not only improve patient outcomes but also open attractive investment opportunities.
The robust pipeline of new drugs, combined with an aging global population and increasing health care demand, is likely to sustain strong performance in this sector over the coming years. Healthcare equities are known for providing solid risk-adjusted returns, and given that Western populations are ageing, this could continue over the coming years.
6 - Remember: There Is Always a Good Reason Not to Invest!
There’s always a compelling case for sitting on the sidelines—be it due to market corrections, pandemics, wars, or recessions. However, history teaches us that while short-term risks can seem daunting, markets consistently recover and grow over time. The true opportunity lies in investing through these cycles rather than waiting for perfect conditions.
The key is to maintain a disciplined, long-term perspective. By diversifying investments and employing rigorous risk management, portfolios can weather temporary setbacks and capture the upward trajectory of the market. Ultimately, the cost of inaction may outweigh the risks, as those who delay investing risk missing out on the long‑term gains that have consistently driven economic progress.
The proof is in the numbers: Despite a series of catastrophic events that have plagued humanity over the past few decades, $100 invested in 1987 would be worth more than $1,600 today!
Concluding Insights
In today’s dynamic environment, where traditional economic cycles, an industrial revival, and breakthrough innovations in technology and healthcare intersect, maintaining a disciplined investment strategy is more critical than ever.
By understanding the dynamic forces at play, investors can navigate volatility with confidence. At the same time, acknowledging inherent risks ensures that strategies stay adaptable and resilient.
Our commitment is to provide clear, data‑driven insights that align long‑term objectives with evolving market trends, positioning portfolios for sustainable growth in an ever‑changing world.
As always, we’re here to review your portfolio and discuss your financial goals, ensuring your strategy remains aligned with your long‑term vision.
Feel free to give us a phone call, send an email, or schedule a meeting. We look forward to speaking with you soon!
Warm Regards,
Your Wela Financial Advisory Team
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Brent Forrest & Associates, LLC. dba Wela Financial Advisory (Wela) is a registered investment adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.
