In 2021, the spotlight was on the electric vehicle sector, attracting significant interest from investors. The following year, as inflation soared to 9%, attention shifted to the energy sector. The introduction of ChatGPT at the end of 2022 ushered in 2023 as the year of AI-related stocks—a trend that has persisted into 2024. Forecasts for 2025 suggest that technology stocks will continue to dominate. However, the charts below reveal an uneven rally when assessing performance since the start of the year.

Source: TradingView

Which Sector Shows Potential in 2025?

The latest Federal Open Market Committee (FOMC) decision may offer some clues. The Fed lowered rates by a quarter point but signaled two additional cuts for 2025, reflecting greater caution about how quickly they can continue reducing borrowing costs. Meanwhile, since inflation hit its low of 2.4% in September, it has been climbing—reaching 2.6% in October and 2.7% in November. This has raised concerns that inflation may be stalling above the Fed’s 2% target, prompting several US Fed officials to express a preference for slowing the pace of rate cuts. US Fed Governor Michelle Bowman emphasized that inflation remains uncomfortably above the Fed’s goal. The Fed’s cautious approach is well-founded. The CRB Index, a long-established benchmark for commodities, closely mirrors the movements of the US CPI. This weighted index, comprising 19 commodities across various sectors, recently broke above its long-term downtrend, signaling the potential for higher commodity prices following the current retracement. 

Source: TradingView

Inflation Concerns Persist

Why does inflation remain a challenge? Quantitative easing (QE), first introduced by Japan in 2001 and later adopted by the US after the 2008 financial crisis, has been widely used by various nations. While QE has benefits, it also dilutes currency value, contributing to inflation. The delayed effects of QE often cause inflation to exceed comfort levels well after the policies are implemented. Despite inflation easing from its peak of 9% in June 2022, it remains persistently above the Fed’s 2% target— a situation unprecedented in modern financial history. Added to this are geopolitical tensions, which could further drive up commodity prices or the Consumer Price Index (CPI), aligning with the projected trajectory.

Managing the Risk

Given the uncertain inflation outlook, I would like to include some commodity assets in my portfolio. While I remain optimistic about technology stocks when conditions are favorable, my current focus aligns with the strategy of accumulating assets with strong fundamentals at their low base. If you use the CMC Invest search feature and look up "Commodity," you'll find several assets that exhibit behavior similar to the ETF highlighted below.

Source: TradingView

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