I believe the market is overlooking a major trend for 2025: a stronger U.S. dollar, which will mean major money shifts to assets that value a strong Dollar.
One of my immediate thoughts is a historic rotation out of mega-cap stocks into small and medium-cap companies simply because the majority of those stocks deal in dollars mostly, are domestic, and are mostly American made and operated.
Important note: Benchmarks like IWM ETF or the Russell 2000 won’t help you spot this shift because they remove stocks too quickly when they exceed certain market caps. To see this rotation early, you’ll need to follow more specific data. I’ll share more details on this soon.
Right now, the market is still dominated by a handful of mega-cap stocks driving most of the gains, as well as their complex global supply chains and handling in many different currencies. If the Dollar grows stronger, this is not great for their forex adjusted earnings. These giants are also heavily weighted across indexes and ETFs, leaving over 3,000 other public companies undervalued and largely ignored. To create a truly healthy market, capital flows need to broaden beyond this narrow focus.
My key point here is that with the dollar potentially on pace to strengthen, companies operating primarily in dollars could be well-positioned for growth. Meanwhile, small and medium-cap stocks remain some of the most undervalued opportunities in the market today. This is a chance to invest in a broader, healthier market.
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