What’s in store for US small-caps in 2025?

The investment outlook for 2025 presents various trends and opportunities across different sectors. Consumer durables, particularly big-ticket items like RVs and boats, have seen a slump due to shifts in discretionary spending and high interest rates. However, with potential economic boosts from pro-growth policies and a natural upgrade cycle, there is optimism for a demand revival. Companies with strong brand partnerships and operational efficiencies are well-positioned to benefit from this resurgence.

Middle and lower-income consumers in the US may experience a spending rebound, driven by falling gas and food prices, improving real incomes, and stable credit conditions. This demographic shift could present opportunities for sectors catering to these consumers, as they adjust to more favorable economic conditions.

In the energy sector, natural gas is emerging as a key player due to increased power demand from AI advancements and manufacturing. Its quick deployment and abundant reserves make it a preferred solution for meeting new energy needs, despite the challenges other energy sources face with permitting and grid connectivity.

The equity market, particularly small-caps, has seen reduced volatility in 2024, which is expected to normalize in 2025. Historically, increased volatility has been followed by higher returns, suggesting potential opportunities for long-term investors. The strength of small-caps in the latter half of 2024, combined with expected volatility, supports a cautiously optimistic outlook for these assets in 2025.

In summary, while challenges remain, opportunities exist across consumer durables, energy, and equity markets, driven by economic policy changes, demographic shifts, and sector-specific dynamics. A strategic focus on leveraging these trends while managing risks could yield favorable investment outcomes.