WSJ What’s News - WSJ’s Take On the Year: Market Trends to Watch in 2025

Episode Date: January 5, 2025

This week, we have a special market trends episode from the recently relaunched WSJ’s Take On the Week podcast.  AI was a big stock market theme in 2024. We’ve talked about it, and heard it many times. But it was far from the only thing that happened in stocks last year. We saw record-breaking growth from power companies like Vistra. Cult stocks like Palantir and MicroStrategy also had a moment. And of course, Nvidia, a company that needs no introduction, had a blockbuster year.  But where there are winners, there are also losers. The announcement of Walgreens’ potential sale highlighted the challenges within the retail pharmacy sector. Shares of biotech company Moderna also slumped, partly due to waning demand for its Covid-19 vaccine and booster. And discount chain Dollar Tree took a hit as its shoppers showed signs of belt-tightening. For our first Sunday episode of 2025, WSJ’s Take On the Week co-hosts Gunjan Banerji and Telis Demos are joined by colleagues from WSJ’s Heard on the Street column to discuss 2024’s stock market winners and losers and what those stock performances and other market trends could mean for investors and the economy in the year ahead.  And if you like what you hear, be sure to check out WSJ’s Take On the Week.  Further Reading: Walgreens Is in Talks to Sell Itself to Private-Equity Firm Sycamore Partners  Tech-Loving Hedge Funds Have a Crush on Utility Stocks  For more coverage of the markets and your investments, head to WSJ.com, WSJ’s Heard On The Street Column, and WSJ’s Live Markets blog.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey what's new listeners, it's Sunday, January 5th. I'm Luke Vargas for the Wall Street Journal. This week we have something special for you, an episode from WSJ's Take on the Week podcast. On Sundays co-hosts Gungeon Banerjee and TELUS Demos bring you conversations with insiders about markets, the economy, and finance. And in today's episode, Gungeon and TELUS are joined by colleagues from WSJ's Hurt on the Street column to discuss 2024's stock market winners and losers and what those stock performances and other market trends could mean for investors and the economy in the year ahead. And if you like what you hear, be sure to check out WSJ's take on the week wherever you

get your podcasts. Happy listening. So tell us, do you have any New Year's resolutions? I do. Get more sleep. 2025 is the year when I will finally grow up and say, no more of this, one more episode, or let me just take care of. It is time for me to go to bed at a good hour and get a full night's sleep every night. And that will make me a better person, a better podcaster. A better podcaster. Just a better human being. That is going to be my 2025.

It's going to be amazing. Love it. Love the enthusiasm. How about you, Gunjan? Do you have any resolutions? You know, I'm not a big New Year's resolution person. But this year, I think I really want to get better at poker. I learned for the first time in 2024,

had so much fun, and I kind of want to dive in. Gunjan, I feel like there's like an employment lawsuit brewing here where the Wall Street Journal asked you to cover like options and then kind of get into betting and gambling. And you wrote that story where you actually traded options and then you wrote about people in the markets who play poker. Like, are we going to end up having to go pull you out of some underground poker club

one day and you're going to say the journal made me do this? Well, if you know of any games, let me know. I do think 2024. I'm in the market for an underground poker game, guys. That's terrific. Well, we have a lot to tackle here. Let's get into it. Gunjian Banerjee, lead writer for markets here at the Wall Street Journal and I'm Telus Deimos

I write for the journals heard on the street column and for our first episode of the year We are bringing you WSJ's take on the year That's right This episode is a little different than ones we've had so far for this episode We're joined by our colleagues Spencer Jacob and Aaron Back. Spencer, why don't you say hello? Hi, Telus. Hi, Gunja. Aaron. Good to be here, guys.

We're going to have a roundtable conversation this week about the winners and losers of 2024 in the stock market. We're going to talk about important themes and sectors to pay attention to, and we're going to begin to look into our crystal balls and think about 2025. Spencer is the global editor of Hurt on the Street. That is the section of the paper I work for. So, Spencer, special welcome to you. And Aaron Beck is the deputy editor of Hurt on the Street and he also covers a few different industries including food and macroeconomics. Aaron and Spencer, welcome. Thanks for having us. We thought a fun way to talk about the winners and losers of 2024 in the market was to actually just open up Faxit.

I've got a screen here in front of me with the top and bottom performing companies in the S&P 500. And I want you guys to tell me what you think those companies are. We'll see how many of them you guys know, and then I'll give you the answers. Some of them are obvious. Some of them are totally not obvious. And so I'm very curious how a group of market reporters, people who've been looking and thinking about the markets for years and years and who do it all day

long every day, how well you know the winners and losers for the year. The real story is Tellus has been quizzing me because because I sit next to him, for the past few weeks, and I said, let's bring in Spencer and Aaron, and we can do a little bit of trivia with them as well. Well, I'm gonna get some of them wrong, but there's definitely a common theme in what has done well and what has done poorly. I mean, in terms of what has done well,

most of them are AI or AI adjacent. And by AI adjacent, I mean utilities like Vistra constellation energy Number two. Yeah the second so so I can't believe you got that. I cannot believe Spencer got that right away I mean the video obviously yes. Yes in video number three. So by the way quickly I just want to establish that we are recording this podcast episode on December way quickly, I just want to establish that we are recording this podcast episode on December 18th, kind of mid afternoon. So some of these things might actually change by the end of the year.

There could be big swing on that. And so let's just so I just want to I just want to caveat that to anybody who might be consuming this show at a different point in time. So Spencer, yes, Vistra, that's the number two best performing stock in the S&P 500 so far Through this year. It is up well over 200% Aaron. You said Nvidia. That's up well over 150% So now we've just got three more from the top five Broadcom? Nope. Could that be? No, okay. Nope. Nope. Palantir? Palantir! Number one. Why Gunjan? What is going on with that company? Palantir is Palantir, there you go. Number one. Why, Gunjan, what is going on with that company?

Palantir is such an interesting one. It's up more than 300% this year. And I think this really shows us a big theme of 2024 and one that I think is going to continue into 2025, which is that cult stocks have done really well. Palantir has turned into a cult stock, right? People call its eccentric founder, Alex Karp, Daddy Karp. They call themselves Palantirians, the followers do. It's kind of turned into a meme stock

and has this really passionate fan base, similar to the fan bases of Tesla and MicroStrategy. And I think that's gonna be so interesting to watch in 2025. Well, Palantir is also perceived to be close to Trump, right? Because I think Palantir is backed by Peter Thiel. So that's another important 2024 theme, is obviously the Trump adjacent stocks have done well. Probably Tesla's.

Is Tesla up there? Tesla is not up there for the market overall. I mean, it's been on a tear this year year and that's because Elon Musk is perceived to be really close to Donald Trump and we'll see where that relationship goes in 2025. So there are two other companies in the top five but and Spencer is Vistra as you pointed out is an AI adjacent company Vistra has nothing to do with software. It's a nuclear power. Nuclear power is exactly what these energy-hungry data centers need. They need reliable uninterrupted

power and nuclear is carbon-free and increasingly you have these nuclear power providers signing deals directly with hyperscalers that have data centers. So it's like a match made in heaven right now. There was a great stat in heaven right now. There was a great stat in a journal story the other day. It takes around six to 10 times as much electricity to process a chat GPT query compared with a Google search. So that power's gotta come from somewhere.

Yep. All right, so we're missing two of the top five. You've got, okay, number one, Palantir, two, Vistra, three, NVIDIA. What's number four? What's the four best? I do think I know what it is. And it has nothing to do with AI or power.

It's Texas land and Pacific. That has been among the top 10. I think that's in the top 10. No, no, it's not number four. Number four is Exxon Enterprise. That company has joined the NASDAQ 100 and they are the maker of tasers and also other businesses including body cams

for police departments. And number five is also not an AI company. It is United Airlines, up about 130% this year. As a journal story put it recently, air service on many popular US routes exceeded even record numbers of US air passengers And United said it was regaining domestic pricing power as budget airlines paired back flights on money losing routes So as the spirits of the world sort of struggle the United's of the world are doing better

So what about the worst let's flip to the other side Can you guys name any of the five worst performing stocks in the S&P 500? I bet I can but I'll let I don't want to hold. I'll guess Moderna. That is correct. That is the third worst performer up to this point. It's down in the neighborhood of say 60%. What made you kind of jump on that name, Aaron? Well, I mean, they were a big COVID beneficiary. Obviously, it's a vaccine stock, right? So they got hit with kind of slowing adoption of COVID boosters and just general, you know, the stock did great in the pandemic, sort of post pandemic period. So a lot of that has come off.

And there's obviously nervousness about RFK Jr. coming in. So a lot of- He has views that- You know know notorious vaccine skeptic, right I'm gonna say the dollar stores have done very badly Dollar Tree and Dollar General So anything relying on on low-income people those are definitely down there and then health insurers have done quite badly recently I don't know if they've done badly enough that they're down at the bottom, but that's been a horrible sector. Yes. So Dollar Tree is in the top five worst performers at this point. It's down about 50%. And relatedly, I think to your point there, Walgreens is actually the number one

kind of underperformer of the year. It's down about 60%. And so the full name of the company is Walgreens Boots Alliance. It's obviously the drugstore chain and that stock has struggled. I have two other guesses. Just two notable train wrecks that come to mind are Intel and Boeing. So Intel is in that bottom five performers. As of right now, it's down about 60 percent. And then the other one, I don't think any of you guys are going to guess this one, so

I'm going to go ahead and tell you, it is Selenese, which is a maker of many different kinds of chemical things. The company earlier this year said that it was significantly slowing production and slashing its quarterly dividend as it seeks to cut costs because of decreasing demand levels for paints, coating, and construction applications. What's your read about what these stock winners of 2024 kind of tell us about the broader market? I feel like a lot of attention was paid to AI stocks, but a lot of these names we just name checked. They were not AI stocks. Did the stock market really broaden this year?

It did not broaden. There was a period of broadening. What's broadening? Broadening is like, let's look at the S&P 500 and let's say, what did the median stock do? And then what did the whole index do? And there was a period over the summer and then later after the election where that was the theme that strategists were talking about,

the broadening, where all this good stuff that was happening to the mag-7 stocks was spreading to the rest of the market, and that's petered out a couple of times. So if you kind of zoom out a couple of years, you look at the equal weighted S&P 500, it's done about 30 percentage points worse. I mean, it's a notable lag versus the S&P 500. Well, everyone, thank you for playing along with our little guessing game there. After the break, we'll talk about how some of these big themes that we learned in 2024 will be maybe applied this year in 2025 as we start our look ahead to this new year. All right, so we know some stuff that worked or didn't in 2024.

Sometimes the opposite then happens the next year in the market. A very good strategy sometimes is just buying things that were down before because they tend to go up and vice versa. But sometimes we just have to accept a new normal. There's just like a new baseline, and it's time to accept that this business that this company's been in has just changed forever, or at least for the foreseeable future.

So what are some things that you guys are thinking about thematically in 2025? One thing that stands out, I mean, yeah, the kind of last shall be first and first shall be last is tempting, it's kind of like a be first and first should be last is tempting. It's kind of like a lazy type of analysis and it actually doesn't work. Like you'd be 50-50 if you did that each year. There is this long held dogs the Dow strategy, which is more of a value strategy, which actually has worked where basically you just, you know,

and you don't have to do this with the Dow, but you pick companies that have the highest dividend yields because those are the ones that have done poorly and there's some reversion to the mean and it's done okay, but not every year, no guarantees. But let's look at some extremes in the market right now. Let's look at healthcare stocks, for example, which we were talking about earlier. They are now in terms of their valuation at their lowest relative to the S&P 500 in 16 years. What was happening exactly 16 years ago? Barack Obama was about to become president of the United States and people were freaking out about what he would do with healthcare and there was this sense that it would gut

the industry and gut its profitability. Actually the exact opposite happened at least for insurers. Not to say that history will repeat itself, but when there's this extreme pessimism about one business that's not going to go away, healthcare obviously can't go away, it can just transform, that's something interesting to look at. Gunjan, what are you thinking about in 2025?

You know, to your point about, do we find a new normal in certain industries or certain corners of the market? I think the market in 2024 just got a lot riskier. And I think that's a trend that's going to continue. I think it's going to keep getting riskier. I think Wall Street is going to keep introducing crazier ways to play tech stocks, to play crypto, to play the stock market.

We saw that in things called leveraged exchange traded products, right? Promising triple the exposure to the NASDAQ or single stock ETFs that also offer leverage. And you know, these ETFs basically borrow heavily to turbocharge exposure to individual stocks to major indexes. And there was a huge boom in those in 2024. I mean, people really could not get enough of just the riskiest trades in the entire market. So that's one area I'm watching closely because I think it's going to keep changing and I

think people are going to keep piling into them. I have two themes that I'm very interested in. One negative, one, you know, potentially positive, but depends how it breaks. So the thing I'm most worried about is a second or a new inflation shock. We've already seen that the inflation is sort of stopped slowing. It's kind of leveled out around like 2.5% to 3%. And okay, now we don't know exactly what's going to happen, but tariffs are inflationary. There's no way around it.

So the question is how much new tariffs are we going to have on how many countries, on how many classes of goods, how high are they going to be? I don't know. I'm willing to bet there's going to be a significant amount of tariffs. And how does that play out in the market, though? Are there companies that that is good for their business, either because it chases out a foreign competitor or then they can raise prices on top of that and pad their margins. Like that isn't necessarily a, that

kind of inflation is not necessarily bad for the stock. So there's going to be winners and losers to your point, okay? But my concern is more if we get a kind of broad inflation because of tariffs, all right? So if we just have like just some targeted tariffs on China again, that won't happen. Okay? But if we have sort of these across-the-board tariffs of the type that Trump has is talking about, that will be inflationary for the entire economy. And then I think that could be extremely negative for the market because it means that the Fed might not be able to cut anymore. I think one difference this time between last time

is we've clearly reached a point where the public is kind of fed up with price rises Okay. Yeah, and you see it especially in a sector I cover which is food. So food companies are all you know raised prices massively During the pandemic and for a couple years after the pandemic and lately have been taking incremental cutting prices Maybe 1% doing more promotions things like this Because they see that the public is really upset with high prices and they need to keep their sales up so they're starting to cut prices. Now, let's say we get tariffs, a lot of food is imported. Or let's say we also get a crackdown on immigrant farm labor.

Okay, that's going to make food more expensive. People do not want to see higher food prices at the grocery store. If there's anything, if there's any takeaway from the election, it's that. I mean, it was, Jhungunjh and I have talked about it many times, like the price of eggs, which is, which is- Oatmeal. By the way, if you look at the CPI, it's like something in the neighborhood of 10 cents out of every hundred dollars and yet people really keyed in on that.

The price of eggs is the price of eggs, okay? But if I make a packaged food or if I'm McDonald's, okay? Or if I'm General Mills, I sell cereal Okay, my input costs will go up because I import some food. There may be fewer immigrants working on farms Now what do I do? Do I go and raise prices to consumers? You know a few years ago the answer was yes, absolutely raise prices to consumers protect your margins now That's a much harder question. People do not want to see that right now. Okay. And so that means that those companies are going to see hits to their margins if they can't pass

through price increases. So even though inflation in the past was associated with a pretty well performing stock market, you're saying it might not play out that way. Because companies could be out of room to pass those costs on to consumers. So that's one thing I'm very concerned about. Now one thing I'm very curious to see, okay, is you know we talk about stock market broadening. I want to see some AI broadening. All right, so right now the biggest winners, we went through it at the top of the show, are basically people who sell picks and shovels for AI, right? So picks and shovels is an old expression like rather than go mine for gold, you

sell the picks and shovels to the gold miners, you make money whether they find gold or not, right? Okay, so Nvidia is selling the picks and shovels to the gold miners you make money, but they they find gold or not, right? Okay, so Nvidia is selling the picks and shovels to all the companies who are trying to build AI systems All right, they're making money same thing with the power companies. Okay, they're making money So far I have yet to see really really compelling end use cases for AI that make money Okay, we've all seen impressive chat bots things like that. But I think for this AI rally to keep going, we need to start hearing about real world applications that are making big differences to companies' bottom lines. You know, like there's speculation it'll help with drug development. You know, it could even be someone like United Airlines saying, look, we're using AI to,

you know, massively reduce delays or what have you. That's interesting because I think that that means that the AI trade, look, we're using AI to, you know, massively reduce delays or what have you. That's interesting, because I think that that means that the AI trade, which today we think of as either companies investing a ton of money in AI to create AI specific products, and that might be Alphabet or Meta, or the picks and shovels like Nvidia, and you know, people selling the tools for AI. But maybe at some point, the AI trade just becomes a Productivity enhancement trade and so the best AI stocks to buy are not AI companies, but you know Right which reaching which two things that I would like to say one is someone like Google or Microsoft making real money

Selling AI tools to customers, but so far. I don't see a of evidence that's actually happening. But the second thing to your point is evidence that AI is really boosting productivity, you know, throughout the economy, you know, as happened with the internet in the 90s, you know, for example. That would be positive for the entire market, positive for the entire economy. If we don't start seeing that, then I think you might start to see a little disappointment creep in to the AI trade. Either way, it seems like the AI trade is going to keep kind of trickling through the stock market in 2025. So when we come back, we are going to ask Spencer and Aaron one last question about 2025. Spencer and Aaron, can you name one thing that you think is going to be a huge hit in 2025?

I'll go first. And this does have, there are some indirect ways at least, and increasingly I think there'll be some direct ways to play it, which is you've had this, I think it's unfortunate, but like a boom in sports gambling, which has made people much more interested in sports. It's brought more people into it. People watch games and contests that they might not have paid attention to instead of just their hometown team

and their favorite sport. And I think that that has trickled through in the private market to sports team valuations. And you have a lot of things like MSG, which is considered to be very undervalued, or the Sphere, or whatever, all these things that public investors can participate in. I think you're probably going to have more of those,

more access to that, because people are championing it a bit to get access to the sports economy. Erin, what about you? I'm tempted to say that I'm bullish on Europe. The European stocks have been underperforming for decades, and I just think it's reached a point where people are just too pessimistic about Europe in general. I know there's political turmoil right now in France and in Germany, and that has people very down. But I wouldn't be surprised if we look back

maybe five years from now and think that this was actually the time to buy Europe. I think the election of Donald Trump could have a kind of galvanizing impact on Europe, where they really decide they have to get their act together. I think you're going to see higher defense spending. I think you're going to see more stimulative economic policy, both monetary and fiscal in Europe.

And you might even start to see more of a sort of a push to develop their own technological champions. So I'm not sure if this is something that's gonna play out in 2025, but I think it's something that could start in 2025. I think 2025 could be the year to kind of get bullish on Europe again. That's a bold call, Aaron. Yeah, I'll probably regret it.

Ha ha ha. Thank you guys. Thanks for asking us. And that's everything you need to know to take on your week. This show is produced by Jess Jupiter and Trina Menino. Michael LaValle and Jessica Fenton are our sound designers. Michael also wrote our theme music.

Aisha Al-Muzlim is our development producer. Scott Salloway and Chris Zinsley are the deputy editors. And Falana Patterson is the head of news audio for the Wall Street Journal. For even more, head to wsj.com. I'm Gunjian Banerjee. And I'm Telus Demos. Until next time.