Before we jump into the hard-hitting predictions for 2025, let’s take aminute to put a bow on 2024.
2024 was a good year for most US-based risk assets. US markets outperformed international markets despite international markets continuing to look cheap on a relative basis. Furthermore, after a solid resurgence in 2023, the bond market struggled to keep pace despite the Fed providing a full percentage point of rate cuts.
As of this writing, the major asset classes have performed as follows:
- The S&P 500 is up over 26%
- Nasdaq up over 32%
- Mid Caps up over 12%
- Small Caps up over 11%
- Small Cap Value up over 7%
- International Developed up over 4%
- Emerging Markets up over 8%
- US Aggregate Bonds up around 1%
- Bitcoin up over 100%
- Gold up over 26%
- US Dollar up over 6%
- Globally Diversified 60/40 Portfolio: up around 10%
*Source Google Finance
So, everyone clearly knew what was coming in 2024 and nailed their forecasts last year, right?
Not so much! Looking back to last year’s Wall Street Strategists 2024 Forecasts (Source: Ritholtz Wealth Management), the S&P 500 has once again defied the expectations of forecasters. This is almost guaranteed to happen again next year and every year from here on out.
Turns out predicting the future is hard. Like really hard. No one has a crystal ball.
Having said that, below are some of my best guesses at what to expect in the year ahead:
If you absolutely MUST look ahead to some potential risks that loom for markets in 2025,Torsten Slok from Apollo(one of Wall Street's best and brightest) recently shared his top probability-adjusted risks to markets for the year:
- Tariffs coming: 90%
- NVIDIA earnings disappoint inflated expectations: 90%
- US economy reaccelerates and animal spirits come back: 85%
- M&A/IPO activity rebounds: 75%
- Fed stops talking about r*: 70%
- US inflation accelerates in Q1 driven by strong economy, tariffs, restrictions on immigration and seasonal factors: 40%
- Fed raises interest rates in 2025: 40%
- US 10-year interest rates move above 5% before mid-year: 40%
- Probability of a recession in Germany: 40%
- China outright recession in 2025: 33%
- Fiscal crisis in the US: 10%
- Probability of a US recession: 0%
I'd like to add one more risk to the above list--similar to early 2023 when all market participants were bearish and expecting a US recession to follow shortly, Wall Street is now almost unanimously bullish heading 2025. This leaves me on the cautious side of optimistic as we head into the new year.
Sharing timely and prescient reactions to the aforementioned risks fromJosh Brown of Ritholtz Wealth Management:
“The bigger risks one should be concerned about are the ones that don’t appear in any of the year-end literature coming from Wall Street.These are the unknown unknowns. The exogenous shocks that no one in finance is thinking about because they transcend finance. Putin decides he wants Poland. Two submarines accidentally bump into each other in the Strait of Taiwan. A new strain of bird flu starts infecting humans. MPox jumps into the Northern Hemisphere. Something alien steps off a drone on a soccer field in New Jersey. You could lie awake at night driving yourself crazy over this sort of risk and still never see the thing coming when it does. There were no Wall Street strategists talking about pandemics in late 2019 and it became the singular defining economic and societal force of the 2020’s decade (so far).Don’t play this game, you can’t win. It’s un-investable anyway - even if you could guess at it, you still couldn’t know how governments and investors would react when it happens.
A completely unknown risk is out there along with many completely known potential landmines, like debt blow-ups, rate hikes, bad inflation readings, etc.Get comfortable with that. Because for as long as you live, and long after, it’s always going to be this way.
You’re being paid to take these risks in the form of average annual returns far exceeding the returns on cash.”
I couldn't have said this better myself. This is the good stuff.
So, to wrap up and add some REAL predictions for 2025:
Some stocks will go up, some will go down, others will remain unchanged. Same goes for most asset classes. The world is a surprising place—prepare to be surprised in 2025.
You will learn something new. Hopefully lots of new somethings.
The Chicago Bears will stink (evergreen at this point).
New businesses will be created. Others will go out of business. Some will go public, others will be taken private.
You will visit new places or spend time in the places most meaningful to you.
You will control your spending and savings decisions.
Cable news will try to scare you.
You will meet new people.
The biggest risk(s) to your portfolio is something no one is talking about today (as previously mentioned above).
Groups of people will be at odds with other groups of people—some may lead to conflict or the continuation of existing conflict.
Charity and kindness will continue to pay huge dividends.
You will (hopefully) turn a year older.
I look forward to working together through whatever vibes 2025 brings. Wishing you a happy, healthy, and prosperous New Year!
Will