Wall Street wrapped up a blockbuster 2024. The Nasdaq Composite Index outperformed, rising 28.6%, while the Dow Jones advanced 12.9%. The S&P 500 climbed 23.3% after a 24.2% jump in 2023. This marks two consecutive annual gains above 20% and the best two-year cumulative gain of 53.2% since 1997-98.
The enthusiasm surrounding AI, the rate-cut wave and hopes of growth under President-elect Trump's administration drove stocks even though geopolitics, global growth slowdown concerns and Fed rate cut uncertainty led to a risk-off trade.
With a skyrocketing stock market, the global ETF industry also boomed, breaking new records in terms of inflows. This is especially true as investors poured about $1.2 trillion in new assets into U.S.-listed ETFs in 2024, per etf.com (read: 5 Most-Loved ETFs of 2024).
Here are some predicted trends for the ETF world that may influence the industry in 2025:
Bitcoin ETFs to Stay Hot
Bitcoin ETFs saw unprecedented interest from institutional investors, retail traders and governments following their launch last year. These funds saw inflows of $38 billion in 2024 with BlackRock iShares Bitcoin Trust IBIT leading the way and accumulating $37.2 billion in capital. Fidelity Wise Origin Bitcoin Fund FBTC secured the second position with $11.9 billion in inflows (read: Bitcoin ETFs See $10B Inflows Following Trump Win).
The love for Bitcoin ETFs will continue this year, as the launch of multiple spot Bitcoin ETFs has ushered billions in new liquidity and normalized Bitcoin as a legitimate investment vehicle. Optimism for a cryptocurrency-friendly regulatory environment under Trump drove Bitcoin to a new level of $108,000 last month.
The President-elect has vowed to make the United States “the crypto capital of the planet.” With Trump set to take office on Jan. 20, the digital currency is expected to rise further, attracting new capital in bitcoin ETFs. Bernstein forecasts Bitcoin to rise to $200,000 by the end of 2025, buoyed by solid institutional and corporate adoption.
Small-Cap ETFs Set to Surge
Small-caps, which were hit largely by the Fed’s less dovish stance for 2025, might rebound this year. Though the Fed envisions only two rate cuts in 2025, it slashed interest rates three times last year, bringing down the benchmark rate to 4.25-4.50%. As the pint-sized companies have a higher debt burden (mostly at floating rates), lower rates lead to reduced borrowing costs, helping small businesses expand their operations easily and resulting in increased profitability.
Additionally, President-elect Trump's policies of deregulation, lower corporate tax rates, restriction on illegal immigration and enactment of new tariffs would provide more stimulus to the U.S. economy and benefit small-caps the most. For pint-sized companies, which often lack the financial resources of larger firms to manage regulatory compliance, reduced regulations mean lower operational costs.
For investors seeking to capitalize on this opportunity, iShares Core S&P Small-Cap ETF IJR¸ iShares Russell 2000 ETF IWM and Vanguard Small-Cap ETF VB could be solid pure plays. These have a solid Zacks ETF Rank #2 (Buy) each.
TIPS ETFs to Gain Appeal
The incoming Trump administration tariff plans will likely boost inflation. In such a scenario, investing in Treasury Inflation-Protected Securities (TIPS) ETFs, which offer shelter against rising inflation, would be prudent. They not only combat increasing prices but also protect income for the long term. Among the popular choices are iShares TIPS Bond ETF TIP, Vanguard Short-Term Inflation-Protected Securities ETF VTIP and Schwab U.S. TIPS ETF SCHP.
AI Boom to Stay
The AI boom will continue to fuel the rally in the broad market, with companies investing huge sums in the technology sector and beyond. The expansion of AI applications holds the promise of ushering in fresh growth opportunities in the tech sector and beyond. Per Statista, the global artificial intelligence market is expected to increase more than 300 times from $39 billion in 2022 to $1.3 trillion by 2032 (read: Top ETF Stories of 2024).
Investors seeking to make the most of the AI industrial revolution should consider Global X Robotics & Artificial Intelligence ETF BOTZ, Global X Artificial Intelligence & Technology ETF AIQ and Themes Generative Artificial Intelligence ETF WISE.
Trump, the Fed to Spike Market Volatility
Volatility in the stock market is set to pick up this year, given Trump’s tariff policies and uncertainty over Fed rate cuts. In such a scenario, dividend investing seems the best choice as it offers consistent and safe income. The strategy does not offer dramatic price appreciation but is a major source of consistent income for investors in any market. Top-ranked dividend ETFs like Vanguard Dividend Appreciation ETF VIG, Vanguard High Dividend Yield ETF VYM and iShares Core Dividend Growth ETF DGRO appear to be exciting picks. VIG has a Zacks ETF Rank #1 (Strong Buy), while the other two have a Zacks ETF Rank #2.
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iShares TIPS Bond ETF (TIP): ETF Research Reports
iShares Russell 2000 ETF (IWM): ETF Research Reports
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
Vanguard High Dividend Yield ETF (VYM): ETF Research Reports
iShares Core S&P Small-Cap ETF (IJR): ETF Research Reports
Global X Robotics & Artificial Intelligence ETF (BOTZ): ETF Research Reports
iShares Core Dividend Growth ETF (DGRO): ETF Research Reports
Vanguard Small-Cap ETF (VB): ETF Research Reports
Vanguard Short-Term Inflation-Protected Securities ETF (VTIP): ETF Research Reports
Schwab U.S. TIPS ETF (SCHP): ETF Research Reports
Global X Artificial Intelligence & Technology ETF (AIQ): ETF Research Reports
Themes Generative Artificial Intelligence ETF (WISE): ETF Research Reports
