One Sector Could Dominate 2025: Geopolitical Shifts and Economic Trends Are Laying the Groundwork for a Major Comeback
One sector stands out as a potential key player in the stock market landscape for 2025. A confluence of political, economic, and geopolitical factors appears to be setting the stage for a significant revaluation.
But does it truly make sense to anticipate a rally in stocks tied to this sector?
Let’s take a closer look at the traditional energy sector, with a focus on oil and natural gas
Global Policies and Their Impact on Traditional Energy
The resurgence of Donald Trump as a dominant figure in the Republican Party and the rise of right-leaning governments across Europe are reshaping the energy debate. These political forces often deprioritize clean energy initiatives and sustainability in favor of bolstering traditional energy sources.
In the United States, a potential Republican administration could stimulate the oil and natural gas industries with tax breaks and deregulation policies. Similarly, in Europe, the growing emphasis on energy security amid heightened geopolitical risks may decelerate the transition to renewables.
Geopolitical Tensions and Energy Demand: The Current Landscape
Energy demand remains tightly interwoven with geopolitical developments, which continue to inject volatility into commodity markets. In 2024, global tensions were especially pronounced. Escalating conflict in the Middle East—notably between Israel and pro-Iranian factions—raised fears over disruptions to critical oil transport routes in the Persian Gulf.
Meanwhile, the ongoing crisis in Ukraine, though less intense, still causes periodic interruptions to gas supplies in Europe. In the Asia-Pacific, the rivalry between China and the United States over the South China Sea adds yet another layer of uncertainty for global energy supply chains.
Global Economic Outlook for 2025
Economic forecasts suggest a nuanced backdrop. According to Goldman Sachs, global GDP is projected to grow by 2.7% in 2025. In the United States, CPI rose 0.3% in December 2024, pushing the annual inflation rate to 2.7%. This underscores that inflation remains unresolved—a condition historically linked to rising energy prices, as higher production and transportation costs inflate commodity prices.
Emerging economies are also contributing to rising energy demand. China recently unveiled an economic stimulus package aimed at boosting domestic consumption and manufacturing—likely fueling demand for oil, given its status as the world’s largest energy consumer. Similarly, India and Brazil are benefiting from robust recoveries, further supporting global demand for energy resources.
Energy Stocks: Performance and Future Prospects
Despite challenges in 2024, including a 16% decline in profits for energy companies (FactSet data), the outlook for 2025 is cautiously optimistic. Analysts anticipate earnings growth of over 6%, driven by higher commodity prices and an uptick in industrial demand. Improving geopolitical stability and economic expansion in emerging markets could further buoy the sector.
In this environment, passive investment vehicles like the Xtrackers MSCI World Energy ETF are gaining traction. This ETF tracks the MSCI World Energy index, which includes major players such as ExxonMobil, Chevron, and Royal Dutch Shell. Its portfolio is heavily weighted toward oil companies (70%), with natural gas (20%) and energy utilities (10%) rounding out the mix.
After a challenging 2024—during which the ETF posted a 5% decline while the S&P 500 rose nearly 20%—the question arises: could this lagging sector be primed for a rebound? Technically, the ETF hovers near a critical support level at $45, aligning with the 200-day moving average. Holding this level could signal renewed demand strength.
Risks and Considerations
The energy sector’s fundamentals suggest it could be one of the most compelling stock market stories in 2025. Political, economic, and geopolitical dynamics favor the revaluation of traditional energy sources like oil and natural gas. Persistent inflation, global GDP growth, and the recovery of emerging markets further bolster this outlook.
However, investors must recognize the inherent differences between the energy sector and high-growth industries like tech, which dominated in 2023 and 2024. Regulatory frameworks often compel energy companies to maintain affordable commodity prices, which can cap explosive growth potential.
For long-term investors, ETFs like the Xtrackers MSCI World Energy present both risk and opportunity. As analysts highlight, the sector offers the potential for significant returns—albeit tempered by considerable volatility.
Original article published on Money.it Italy 2024-12-15 18:15:00. Original title: Quale settore borsistico potrebbe esplodere nel 2025?
