A Bullish Take on 2025

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Happy Sunday.

Ok, so I know a ton of folks are thinking well… crap “ we are up to much” and “this isn’t sustainable”.

We saw the QQQ return 26% last year and +50% in 2023.

Now Trump's heading back to the White House with legit tariff threats, and the Fed's getting cold feet about those proposed rate cuts. Who knows what kind of returns we see in 2025, I’m bullish until I’m not and here are my pillar points on the the case for the bulls.

Four Pillars I’m Paying Attention too

1. The Market Just De-Risked

Something strange is happening under the hood. Just as the S&P 500 touched 6,000, we saw a blanket of de-risking.

Goldman's Prime Brokerage data revealed something fascinating: institutional net leverage has plunged to -6% – levels we haven't seen since the March 2020 COVID crash.

Back then, this kind of extreme de-risking made sense – global lockdowns, economic standstill, and pure market panic. But today? The S&P 500 is hitting all-time highs, earnings are strong, and the economy is growing. It's like institutional investors are preparing for a hurricane on a sunny day.

The market's response? Rather than panic:

• S&P 500 jumped 2.9% this last week

• Russell 2000 up 4%

• Bitcoin rallied 10.5% to hang 100k on the wall

This all has to do with the new admin coming into town imho. Until policy roadmaps are crystal clear I think wall street will play defense (as they always do during big transition periods at the white house). Macro environments are healthy and there really is nothing wrong with de-leveraging as a risk management tool. We all know the market hates uncertainty. As long as there isn’t some colossal economy crushing policy put into place, we will be OK.

This creates a setup. Institutions have de-risked to crisis levels near all-time highs, building a massive pile of dry powder. History shows this combination – extreme caution plus price strength – often precedes major moves higher.

The timing is particularly notable. Global liquidity has declined for 15 straight weeks, yet markets keep climbing. This resilience suggests underlying strength, not weakness.

I think of it as a coiled spring. Institutions are positioned for a storm that hasn't arrived. When they realize the sky isn't falling, that defensive positioning could quickly reverse, fueling the next leg higher. Smart money is on the defense but the warning signals are not really here ….yet.

2. Inflation

The December inflation report just delivered a twist. Everyone's focused on the headline numbers – Core CPI at 3.2% versus 3.3% expected – the real story lies deeper in the data.

A wave of deflation is sweeping through consumer America:

• Electronics: -3.6%

• Used cars: -3.3%

• Groceries: -3.4%

• Furniture: -1.5%

• Rental cars: -6.2%

Even more telling? The breadth of disinflation. Seven major consumer categories are now seeing outright price declines. This isn't just inflation cooling – it's prices actually falling.

What started in goods (-3.6% in electronics, -3.3% in used vehicles) has spread to services, with even restaurant meals (+3.6%) and hotel rooms (+2.6%) showing dramatically slower inflation than a year ago. We're seeing the broad-based price moderation the Fed has been waiting for, with nearly every major category now growing slower than wages (+3.9%).

The market implications are significant. With inflation at 2.9%, we're approaching the Fed's 2% target faster than anyone expected. Corporate earnings calls show inflation mentions at multi-year lows. The pricing pressure that dominated 2022-2023 is rapidly becoming yesterday's story.

The Fed spent two years fighting inflation. They might have just won – and markets haven't fully priced in what that means.

3. China Stimulus Is Coming

The population just dropped for a third straight year – total births: 9.54 million, deaths: 10.93 million. Maybe it’s not a crisis.Maybe its a catalyst.

Why? Beijing’s about to be forced into the mother of all stimulus waves. Here’s the setup:

The Pressure Cooker

• 310 million people over age 60 (22% of population)

• Pension system projected to run dry by 2035

• Rural population shrinking while cities swell

• Birth rate stuck at record lows

With a shrinking population in play, China gets something rare: a license to stimulate without inflation fears. While the rest of the world fights price pressures, China can flood the system comparatively.

Population Decline → Deflation Connection:
When a population shrinks, you naturally get deflationary pressure because:

• Fewer consumers means less overall demand for goods and services

• Declining workforce means less wage pressure

• Excess housing and infrastructure capacity as population drops

• Reduced consumption across all sectors

Most countries can’t aggressively stimulate their economies because they fear triggering inflation. But China’s unique situation creates a rare opportunity:

1. Built-in Deflation Buffer

• While the US and Europe worry about inflation when they print money, China’s shrinking population acts as a natural counterweight

• The deflationary pressure from population decline effectively “cancels out” some of the inflationary pressure from stimulus

2. Comparative Advantage

• Other major economies have to be cautious with stimulus due to inflation risks

• But China can be more aggressive because their demographic headwind acts as a built-in cooling mechanism

3. Policy Freedom

• This gives Chinese policymakers unique flexibility

• They can inject massive liquidity without the same inflation concerns that constrain other central banks

• Interest rates can stay lower for longer

• Fiscal stimulus can be more aggressive

4. Institutional Money Shows Strong Conviction

2024 hedge fund returns tell a story the bears keep missing. While folks keep raging about market tops, the largest pools of professional capital are posting their best numbers in years:

• Rubric Capital: +81.5% - betting on tech with TEVA, ROIV

• Light Street: +59.4% - concentrated in NVDA, TSM, AMD

• Whale Rock: +54.1% - riding AMZN, META momentum

The breadth is what matters here. Look across strategies:

• Growth funds crushing tech

• Value players finding winners

• Macro funds navigating rates

• Even distressed funds clearing 30%+

Over half of tracked funds beat the S&P 500's 25.58% return. Their biggest positions? Tech, semiconductors, and AI leaders – exactly where I think 2025’s tech narrative is heading.

Stay curious 🙂 

- John


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Note: This analysis is based on current trends and data. Markets moves fast, so always do your own research.