In theory, and often as we prefer, in practice, corporate profits drives stock prices.

J.P. Morgan’s (JPM) booming profits is a testament this this but what’s behind the profits?

It seems that recently, and perhaps even more in 2025, macro issues will drive the direction of markets and sector trends.

Identifying trends and allocating money to the right sectors and picking the leaders in these sectors is increasingly important. Those that follow the Fed and try to predict the direction of interest rates are one example of this macro-oriented strategy.

As hopes that the Federal Reserve would continue interest-rate cuts slowly fade, let’s dig a bit deeper and look at what will drive both interest rates and profits going forward. It won’t be the Fed but rather the U.S. Treasury $28 trillion bond market that will determine interest rates.

These institutional players read the tea leaves, and it seems that they collectively are looking for incrementally higher rates to compensate for America’s escalating debt.

One was out on Monday that China exported $3.6 trillion worth of goods and services as its trade surplus reached almost $1 trillion last year while America will post a trade deficit of about $1 trillion. While China ran a deficit in oil and other natural resources, its trade surplus in manufactured goods represented 90% of exports and 10% of China’s economy. Classic mercantilism.

Macro of course can cut both ways. While high wire budget battles on Capitol Hill play out, US-China tensions escalate and pull back, and tariff threats dominate the headlines, this could boost volatility in equity markets. Hopes for less of the above as well as less corporate regulation and lower taxes for investors are also actions that could boost markets.

There will be surprises. For example, Goldman Sachs strategists are predicting that Chinese stock markets will rise about 20% by year-end.

Another key issue in 2025 will be whether artificial intelligence (AI) meets its elevated expectations.

This has implications well beyond AI stocks but related sectors and products such as semiconductor chips, data and energy.

Competition is heating up globally. A Chinese A.I. firm recently released DeepSeek-V3, a model that appears to perform about as well as OpenAI’s relative model but was trained for under $6 million and is light enough to be run locally on a computer. Cost, speed, and scale means this will increasingly be at the center of US-China rivalry.

Achieving A.I. superiority has emerged as central to both sides of the rivalry.

Finally, I’m moving WisdomTree’s Japan Hedged Equity ETF (DXJ) which offers exposure to a broad basket of dividend-rich Japanese stocks hedging for yen currency fluctuations from a buy to a sell. The currency hedge this ETF has in place has helped boost our returns, but the yen is likely to reverse this year so its time to move on.

This week we move to commodities recommendation and rather than a shotgun approach, we rifle in on two vital metals overlooked by many including the millions of gold bugs out there.

I expect gold will likely move higher this year, but two other precious metals are positioned for even bigger gains.

Supply and demand signal that palladium and platinum will outperform as EV demand slows and South Africa faces some production challenges.

Two other critical metals are usually considered rarer, more useful, and, therefore, pricier and more valuable than gold. But they are now not just cheaper than gold right now... It's trading near the lowest discount to gold in history. By this I mean the price of divided by the price of gold for nearly four decades.

We can capture the relative price gap between gold and these critical minerals and capture the potential snapback - what analysts refer to as “reversion to the mean”.

Looking back, platinum usually traded for more than gold during the last three decades and at times, the premium was significant with platinum trading for more than double the price of gold in the early to mid-2000s.

I now see a discount that has gotten extreme. The only other time we saw a similar situation was in 2020 when the metal traded for a 60% discount to gold and then then rallied 121% over the next 11 months, while gold surged 25%.

HINT: it is not silver.

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