What do people say to each other on the phone in the trading room? There’s nothing like listening to a trader..
Brokers are those characters in financial films who are always on the phone, buying and selling. They are at the end of the chain and also form a microcosm. As close as possible to the market, they are at the crossroads of opinions, tips, market secrets, rumours and the latest news. And with a bit of practice, a good trader knows who to listen to and who to pretend to listen to.
And one of them, David Kruk, head of the trading desk at LFDE, spoke to us at the end of the year about the feedback from the trading floor. “The consensus is clearly positive on the upside of the markets, mainly in the US, at least for the first part of the year. The word ‘inflation’ is the one that comes up most often in conversations between traders,” he explains in his introduction. Inflation needs to be monitored like milk on the fire.
But surprisingly, before the presidential election, also because this is a microcosm with other sensitivities and contrary to the polls, the market was prescient in electing Trump. Trump-trade stocks had already started to be bought before the election (US equities, bitcoin, dollars, etc.).
And anecdotally, you don’t have to look very far to see who has already gained the most from Donald Trump’s victory. Even the cryptocurrency punters who made the big bucks look like small-footed bettors compared to those who went all-in on Trump 2’s promises. We are talking, of course, about Elon Musk, who has amassed 41 billion dollars from his position in Tesla shares alone.
David Kruk sums up the general view of traders: “2025 will unfold with an unpredictable president, but it will be a predictable year Historical market statistics are favourable. In general, the market rises by an average of 15% in the 12 months following a presidential election in the United States. Trump’s planned policy will stimulate the economy and lower corporate taxes will boost net corporate profits.
But before any future presidential measures are implemented, we need to take note of something that trading rooms are doing,” explains the trader: “growth is already doing well, employment is healthy, consumption is holding up well and interest rates are on the way down” In a sign of things to come, Morgan Stanley has already raised its target for the S&P 500 from 6,000 to 6,500 ahead of these elections. According to the latest estimates, US corporate profits are set to rise by around 11% in 2025. But new economic measures, such as tariffs, could derail the cruising speed of the American growth train. And in the equity markets, the big difference with 2024 is that the rise should no longer be confined mainly to large caps (7 Magnificent) but should extend to other stocks. The S&P Equalweight should perform better in the New Year than in 2024.
A big hand: share buy-backs
In support of this, companies’ own share buybacks (+49% in 2024), a powerful and invisible force behind the rise, should continue at a good pace. In this respect, the energy sector has one of the highest levels of buybacks, with an average of almost 4% of capital bought back in 2024. Brokers are still optimistic about AI, even if they are a little less traditional and more original in their choices.
While the consensus is certainly optimistic for the start of the year, it should be remembered that not all the main forecasts for 2024 have come true, with, for example, fears of a recession that never arrived and a rapid fall in interest rates that has been a long time coming. At the end of 2024, traders identified two risks: inflation and growth. And one of Trump’s decisions is to repatriate illegal immigrants, which will free up jobs that will probably be replaced by employees with higher wage demands, with the risk of inflation returning in the second half of the year.
“An economy that runs surprisingly smoothly like a Ferrari engine
and didn’t need any changes”
The pressure on yields may continue with the forecast increase in the deficit. Higher demand for debt will require higher yields to attract more investors. And at present, the probability of a rate cut at the next FED meeting has fallen to around 60%…
In the end, the White House’s new policy will affect an economy that runs surprisingly well, like a Ferrari engine, and that didn’t need any major changes, as David Kruk points out: “We want to do better than perfect”,
The introduction of much higher customs duties on European imports, as called for by the future American President, is also likely to slow down the European economy significantly. However, for European companies producing in the United States, which will escape the knife-edge of customs duties, income repatriation will take place at more advantageous exchange rates thanks to the strength of the dollar.
Capitulation in Europe?
With a shortfall in performance of over 25%, the question arises as to whether the conditions for a rebound in the European markets are in place. European profits are expected to grow by a meagre 3%, with economic growth rates ranging from 0.7% in France to 2% in Spain. However, scepticism about a rise in the already high European market continues to grow on the old continent. “Aren’t we seeing too much in the dark when earnings estimates remain positive? With hopes of an end to the conflict in Ukraine, a possible revival in Germany to get the economy out of its current malaise, and another possible revival in China that will boost German and Italian exports, we can’t doubt this degree of pessimism, says David Kruk.
Buy at the sound of the gun, as the saying goes. At a time when the valuation of small caps has reached levels so low that they are lower than those seen in… 2008, this casts doubt on the continuation of the market’s already historic underperformance. The faster-than-expected fall in euro interest rates may also add to the upside. But there is one black mark: Europe needs to work on resolving its deficits.
