10 major topics to watch when investing in 2025

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The U.S. dollar’s dual role

The U.S. dollar opened 2025 near historic highs, buoyed by America’s resilient economy and a tighter monetary stance than elsewhere. While a strong dollar draws foreign capital, it can also weigh on U.S. exporters and widen the trade deficit. I recall a friend’s European importer grumbling last winter as shipping costs soared—an appreciation of the greenback isn’t all sunshine for global trade. Watch whether policymakers step in to curb an overvalued currency or let market forces run their course.

European stocks at a crossroads

After lagging behind Wall Street in 2024, European bourses face a make-or-break year. The CAC 40 and Stoxx 600 underperformed amid sluggish growth and political strains in France and Germany. Yet attractive valuations in sectors like luxury goods and technology—think LVMH or SAP—could lure investors back, especially if Chinese consumer demand rebounds. Geopolitical calm and stronger macro data will be key before confidence fully returns to European stocks.

French banks and interest rate cuts

France’s lenders are hoping that softer interest rates will revive mortgage lending and boost net interest margins. In fact, loan originations topped €10 billion last October. Still, a downturn in the economy or unfavourable tax reforms could derail their recovery. I’ve seen smaller banks pivot quickly when rates shifted, but giants like BNP Paribas and Société Générale will need to demonstrate resilience through transparent earnings and prudent risk management.

Prospects of European banking consolidation

2025 may herald a wave of cross-border mergers as banks seek scale to compete globally. All eyes are on the proposed takeover of Germany’s Commerzbank by Italy’s UniCredit. Such deals promise efficiency gains but face political hurdles—nobody wants to lose national champions. For investors, successful consolidations could unlock value, though each transaction demands careful scrutiny of regulatory and cultural integration risks.

Fed policy under political pressure

Investors won’t take their eyes off Fed policy this year. After several rate cuts in 2024, the U.S. central bank is expected to tread carefully amid renewed inflation concerns and the return of Donald Trump. Even a modest delay in easing rates could send borrowing costs higher and squeeze profit margins, particularly in interest-rate–sensitive sectors like technology and real estate.

Big Tech dominance faces challenges

The “Magnificent Seven” now account for over a third of S&P 500 market cap, raising questions about concentration risk. Sky-high valuations mean these giants could be vulnerable to a sharp correction. Regulatory watchdogs are also circling, with potential antitrust actions and AI restrictions looming. Investors will need to weigh whether Apple, Amazon and friends can sustain growth in an increasingly competitive and regulated landscape.

Private equity gears up for growth

With roughly $4 trillion in dry powder, the private equity industry is poised for a busy year. Lower borrowing costs should spur acquisitions, especially in burgeoning fields like renewable energy and tech. Still, valuation gaps between buyers and sellers remain wide. When those narrow, deal volumes could surge, offering attractive entry points for investors seeking diversification beyond public markets.

Watching the French sovereign yield spread

The yield gap between French and German bonds widened alarmingly in 2024, reflecting concerns over France’s fiscal health. A further jump in this spread could signal rising unease about sovereign risk in the eurozone’s second-largest economy. Portfolio managers will be monitoring this barometer closely as an early warning of broader euro-area stress.

Basel III rules reshape European banks

New Basel III regulations demand heftier capital buffers for banks, aiming to bolster financial stability. While intended to prevent another crisis, these rules could strain European banks’ profitability relative to U.S. peers facing laxer requirements. Identifying institutions with robust capital planning and innovative funding sources will be crucial for investors seeking winners in a tighter regulatory regime.

Impact of lower regulated savings rates

France’s flagship regulated savings rate is set to drop from 3 percent to 2.5 percent in February, nudging savers toward higher-yield assets. This shift may bolster equity and real estate inflows but could also temper consumer spending as households adjust. For investors, reallocating capital to sectors benefiting from stronger retail investment—think retail banks and property trusts—could unlock fresh opportunities.

In a year defined by uncertainty, keeping these ten themes on your radar will help you navigate shifting currents and position your portfolio for whatever 2025 brings.