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Written by: Derren Nathan | Hargreaves Lansdow
2024 has seen new governments elected in key economies, including the UK, the US, Japan and France. There’s also been an escalation in military tensions, both in the Middle East and Europe.
Turning to the world economy, inflation has subsided significantly, and the global economy is continuing to grow. But that does mean there’s some uncertainty around the speed at which interest rates will come down.
Overall stock markets seem optimistic. Here are three sectors that have thrived so far this year and what could be next for them in 2025.
This article isn’t personal advice. If you’re not sure an investment is right for you, seek advice. Investments and any income from them will rise and fall in value, so you could get back less than you invest. Past performance isn’t a guide to the future and ratios shouldn’t be looked at on their own.
Technology
It’s been another huge year for ‘big tech’, with little sign of the boom in artificial intelligence (AI) slowing down.
That’s seen some impressive growth in revenues for those providing the tools and infrastructure for what promises to be a paradigm shift in information technology.
Further down the food chain, tangible evidence is emerging that the early adopters are starting to monetise AI solutions, which have the potential to turbocharge productivity and customer engagement in multiple industries.
This is being seen in areas including consumer electronics, business software, digital search and advertising.
Meanwhile, autonomous driving is promising to be the ‘next big thing’, but there are still a lot of hurdles to clear before that becomes a reality for most motorists.
Financial services
Investor sentiment towards the financial services industry has been strong, reflecting a better-than-expected performance by the global economy.
Zoning in on the UK banks, that’s had several positive effects. Loan defaults remain relatively benign. And margins on lending are holding up better than anticipated, with interest rates coming down slower than expected.
Plus, the pace of consumers switching their deposits to more costly longer-term accounts is slowing.
Profits have received a helpful boost from the structural hedge put in place to ease the effect of rate changes, something we called out over a year ago.
In other parts of the financial services world, asset managers have had a helping hand from strong financial markets and recovering inflows, which have helped offset higher costs and pressure on fees.
Investment banks have benefitted from increased levels of deal activity and equity trading.
Meanwhile, some areas of the insurance industry have seen trading conditions improve.
Aerospace and defence
Several trends have been moving the right way for the aerospace and defence industry this year.
On the civil aviation side there’s been no let up in the strong growth trends seen in passenger traffic. That creates a very strong market for spares and repairs. It also supports the continuation of fleet upgrade cycles by the airlines, with manufacturing capacity seen as the main blockage to growth in aircraft deliveries.
On the military side, increased tensions in the Middle East and the continued conflict between Russia and Ukraine are propping up defence budgets in Europe and the US. The US is already the largest spender on defence globally, by a wide margin.
Scope for growth on that front remains to be seen once Donald Trump retakes charge of the US forces. However, there’s growing pressure on the rest of the NATO alliance to increase their contributions towards keeping the peace.
That's broadly reflective of forecasts for US defence spending to remain flat in 2025, with European budgets expected to rise.
Related: 3 Funds Poised for Big Moves in 2025