By Himanshu H. Shah
In a letter to my partners in early January, I predicted a weaker U.S. dollar and a significant correction in U.S. MegaCaps stocks and cryptocurrencies substantially impacting the investor community worldwide. These predictions have come to fruition earlier than thought.
Today, our world is at the confluence of political recalibration, macroeconomic pressures and accelerated technological disruption. While we are not strangers to unpredictability, 2025 is presenting a particularly sharp fork in the road for investors, policymakers, and citizens like never before.
A series of many questionable decisions, including announcing the largest across-the-board tariffs since 1930s is one of the biggest reasons for a 20% sell-off on Wall Street.
Unstable and erratic policymaking is not conducive to strong business formation. In light of recent developments, here are my updated predictions:
1. U.S. dollar’s decline accelerates
The U.S. dollar, long considered the bedrock and bringing prosperity to our country for its durable uptrend, is now facing intensified pressure and massive new uncertainty following the unprecedented tariff proclamation of April 2.
I had projected the U.S. dollar to depreciate by 5-10% in early January, but the new trade war dynamics could accelerate the decline to 10-20% as there will be reassessment by EU and Asian investors in the attractiveness of the United States as a preferred investment destination. The emerging markets, EU and China will benefit the most as global investors underweight U.S. dollar investments.
2. Lower rates and quantitative easing
The Federal Reserve was in a quantitative tightening mode until mid-last year to bring inflation back to 2%. The new administration’s sweeping policy changes have clouded the economic path forward.
Uncertainty and a massive market sell-off triggered by the tariff news may push the Federal Reserve to reduce short-term interest rates aggressively in 2025 and redeploy quantitative easing in 2H of 2025 to ward off severe recession. The potential lower interest rates in an environment of a 6% budget deficit will also negatively impact the value of U.S. dollar compared to the euro, yen, RMB, and other dominant currencies.
3. Magnificent 7 and U.S. MegaCaps will continue to underperform
The anticipated major correction across U.S. “Magnificent 7,” MegaCaps equities, and cryptocurrencies has become an immediate reality in the market correction that began in late February and snowballed into a full-fledged rout this week.
The MegaCaps, already trading at historically high multiples, will continue to drift lower as the earnings growth will be substantially less in light of slower global economic growth and potential foreign government levies being an easy reciprocal target. For investors, 2025 is shaping up to be a year of recalibration, where capital preservation and long-term value finally matter more than hype and momentum.
4. Still early innings of Generative AI adoption
In contrast to the chaos in equities, one area continues to show promise: the mass adoption of Generative AI. Companies are leaning into AI adoption to cut costs, streamline workflows, and maintain a competitive edge.
From finance, medical science, and logistics to legal, accounting, and customer service, AI is helping firms do more with fewer resources. Amid layoffs and budget freezes, productivity gains from automation are becoming critical to survival. For organizations, this is not just a tech upgrade; it’s a structural transformation.
5. Lower oil and higher U.S. unemployment
The shockwave agenda of the new administration has created an atmosphere of tremendous uncertainty and, in many sectors, outright fear. Entrepreneurs and investors thrive on predictability and clear rules of engagement. When policy shifts are abrupt and ideologically driven, they inject uncertainty into planning cycles, deter capital investment, and substantially raise the risk premium for new ventures.
This will lead to 6% unemployment by the end of this year as businesses will reduce both capital and discretionary spending. The biggest tariff levy since the 1930s will negatively impact economic activity across the globe creating lower oil demand and it would NOT surprise me to see an oil price of $50 or less in 2025.
6. Disease prevention focus will pay massive dividends
There has never been a clear government focus on preventing health maladies through better diet, exercise and adequate hormones. So the setting up of AHA or Administration for Healthy America to focus on reducing chronic diseases and obesity is one of the best policy initiatives of the new administration.
This strategic move will substantially reduce future healthcare spending by trillions of dollars. The prevention focus will go a long way reining in the massive increase in our future budget deficit keeping U.S. long-term interest rates from rising.
7. Smaller role and size of the government will be hugely beneficial
The long-term U.S. economic outlook could benefit from a reduction in government waste and excessive regulation. Streamlining bloated bureaucracies, focusing on reducing chronic diseases through prevention, and removing outdated regulations and red tape will ultimately lead to greater efficiency and better resource allocation. It is always great to see major projects get government approvals in a month instead of years!
2025 will turn out to be a year of transformation. Those who can look past short-term chaos and anchor themselves in structural insight will be best positioned to thrive. Because within every disruption lies the seed of reinvention.
(Himanshu H. Shah is the founder of Shah Capital. His views are not an investment advice)
Shah Capital Disclaimer:
The information contained herein is not an offer to sell, or the solicitation of an offer to buy, interests in any investment vehicle or to provide investment advisory services. An offer of interests may only be made through a private placement memorandum (“PPM”). This press release is for informational and educational purposes only. Shah Capital makes no representations, express or implied, as to the accuracy timeliness, or completeness of any such information or with regard to the results to be obtained from its use. All expressions of opinion are subject to change without notice, and Shah Capital does not undertake to update or supplement this press release, or any information contained herein. Specific security mentioned here is for informational purposes only and should not be deemed as a recommendation to buy or sell the security. The specific security identified in the press release does not represent all of the securities purchased, sold, or recommended by Shah Capital and it should not be assumed that investments in the security identified and discussed was or will be profitable.