In 2024, the stock markets were dominated by momentum, generative Artificial Intelligence, and the so-called Trump trade. However, this «trinity» will only be able to replicate its strong performance if it can overcome its inherent challenges, writes Jacques Aurélien Marcireau in his contribution to finews.first.


In this section, authors comment on economic and financial topics.


The return of a business-friendly America, deregulation, and the rebalancing of global trade were key themes influencing capital markets before and after Donald Trump’s election.

The best example of the Trump trade is the dramatic reversal in Tesla's stock price, which swung from a 40 percent decline to a 40 percent gain within the year – a remarkable 80 percentage-points turnaround in just a few months. This surge was fueled by hopes for the effective implementation of campaign promises.

However, contradictions in some measures and divisions within the Republican Party suggest significant challenges and potential disappointments. The Trump trade has also been driven by retail investors, whose rapid changes in positioning add further volatility. Constitutional issues or political compromises could result in many Trump trade-driven gains being reversed quickly this year.

«All eyes are now on the upcoming release of ChatGPT 5»

Artificial intelligence has become an integral part of daily life. However, the installed capacity for generative AI worldwide is seven to ten times greater than current business applications require. If investments continue at the current pace, overcapacity will only grow.

For context, large portions of the fiber optic network installed in the US in 2000 remain unused to this day. Meanwhile, tech giants’ relentless R&D efforts to achieve technological differentiation ensure that AI remains a focus, despite the uncertain profitability.

All eyes are now on the upcoming release of ChatGPT 5. Any disappointment with the technological advancements of this new large language model (LLM) could trigger a market correction in AI-related stocks. Signs of sectoral erosion emerged since summer, with market leadership narrowing to chip and processor manufacturers like Nvidia and sectors like nuclear energy, which are critical for operating the next generation of data centers.

«Momentum investments tend to self-destruct in the long run»

Momentum strategies experienced a significant resurgence in 2024, delivering their best performance in over 20 years. Companies that entered the year with strong upward momentum and consistently revised earnings forecasts – albeit modestly – tended to outperform market indices.

Momentum-driven investment styles, often supported by algorithmic trading, also benefited from the underlying currents created by ETFs, which amplify market movements in their favor – for a time.

However, momentum investments tend to self-destruct in the long run. Rising expectations and stock performance eventually make it nearly impossible to deliver further upside surprises. This often occurs when new momentum emerges elsewhere in the market, sometimes triggered by external factors. While the timing of such a shift is unpredictable, the clock is always ticking, requiring vigilance.

As we move into 2025, investors will need to navigate a complex landscape shaped by the challenges of the Trump trade, the overcapacity in generative AI, and the inherent fragility of momentum strategies. Staying alert to new trends and potential market shifts will be key.


Jacques-Aurélien Marcireau is Co-Head of Equities at Edmond de Rothschild Asset Management.


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