2025 continues the amazing run for US equities from 2023 and 2024. As of December 26, the S&P 500 index is up almost 20% for the year. This is the third year of double digit growth that has been fueled mainly by the hype in generative AI.
Over in Malaysia, the KLCI is ending mostly flat for the year. I’m gradually losing my sense of the Malaysian economy after being in the US for 7 years now. So I don’t know why the market looks dead in 2025.
Comparatively, the STI for Singapore is doing very well – it is up 22% so far for the year.
The one bright spot for Malaysia is the strengthening of the Malaysian Ringgit versus the US Dollar of about 10%. So even though the KLCI gained nothing, assets in Ringgit are worth 10% more in US Dollar terms.
Gold and silver commodities did very well in 2025. For gold, persistent demand from central banks and investors continue to outpace supply since the last 3 years. Its price has risen 71% in 2025, far more than equities have risen.
The Trump Tariff Shock
In April 2025, the US announced steep tariffs for all imports into the country. This is a gambit by Donald Trump designed to negotiate better trading terms with US’ trading partners.
The result of the announcement was shock and uncertainty for the global supply chain. Stock markets never like uncertainties and massive selling quickly ensued.
As with all stock market flash crashes, money eventually moves from the “active to the patient”, quoting Warren Buffet. Those that sold off in the April crash and stayed out would be missing the bull run of 2025.
If it is not already obvious, joining the crowd during panic selling is unwise. This holds true if you have a multi-year investment horizon. Conversely, market crashes are excellent opportunities to accumulate stocks of quality companies.
2026
The US Fed is expected to continue cutting the Fed fund rate in 2026. This action should continue to support US equities for a while. However, we have had 3 consecutive years of strong growth in the S&P 500. A pullback or slowdown will inevitably happen at some point. When that will happen is anyone’s guess.
A major risk to the US market is a slowdown in AI investments. This happens as data center build-outs meet capital constraints and at the same time, AI revenue growth slows. Companies that have leveraged heavily into AI will see their house of cards falling. As with all technology trends, there is a hype phase and a realization phase. Right now the generative AI trend is entering its realization phase. Companies are learning how to deploy it but they are also discovering where its limitations lie.
The Finance Durian 