“Good news, I just finished my last assignment for this year. I am so ready for next year.” My daughter texted this to me while I was writing this article. This year isn’t quite over, but next year is all she can think about. Investors also can’t stop themselves from looking ahead to 2025, and I think they will like what they see.
Looking back, 2024 was another good year for stocks. Stocks were driven higher by AI technology, feisty consumers whose spending continues to propel the economy, a leveling off of inflation, Fed rate cuts, and, as of late, the excitement of investor-friendly policies from the incoming administration. As we look towards the stock market in 2025, there are a few key issues investors should be watching for.
Upside potential: The ingredients that gave us a good 2024 could continue in 2025, namely a continued leveling off of inflation, lowering of interest rates, and strong corporate earnings. If these things continue, they could support the current high valuations. Wells Fargo announced a year-end 2025 target range for the S&P 500 Index of 6,500 – 6,700, which would be a 7-10% increase from 12/11/24. LPL was more conservative with its predicted year-end 2025 target range for the S&P 500 Index of 6,275 to 6,375, which would be a 3-5% increase from 12/11/24. For the Wells Fargo prediction to become a reality, rates would need to steadily move lower, companies would need to see strong productivity gains, and the often talked about market-friendly policies would need to be enacted.
Avoid a recession: Historically, the stock market has had single-digit returns in the 12 months following the first Fed rate cut but increases to low double digits when a recession has been avoided. Outside of some unexpected manmade disaster, I don’t see the makings of a recession in 2025.
Potential risks: Some market conditions make me a little queasy. The economy could be weaker than the numbers show. The numbers show consumers continuing to spend with abandon, but the people I’m around at church and socially are beginning to pull back their spending. They are not stopping their spending completely, but they are not buying the big-ticket items and are buying more off-brand products. Also, if the inflation rates start rising again and the Fed has to pause its rate-dropping program, it could scare investors and negatively affect the market. We also need to see how Trump’s tariff and immigration policies play out and if they help or hurt the economy.
It won’t be smooth: Even if we avoid a recession, it wouldn’t be surprising for stocks to pull back 10% at some point and then recover from it. Be prepared for these times of volatility and be ready to buy stocks during market pullbacks. These are the days when active investment managers are worth their expense. I wouldn’t be surprised by a market dip in the coming weeks and months, but overall, I expect stocks to be positive in 2025 but not as good as they were in 2024.
I am maintaining a neutral stance on stocks as 2025 approaches but keeping funds available to buy when the market dips. I still prefer US stocks over international ones because of much better earnings and because the new trade policies and tariffs will hurt international companies.
My daughter has good reason to be excited about next year. In 2025, she will buy her first house, get married, and graduate from college. Investors might not have an exciting new year, but I think they will be happy with their returns.
Have a blessed week!
Dr. Richard Baker, AIF®, is the CEO and executive wealth advisor at Fervent Wealth Management.
Securities and advisory services are offered through LPL Financial, a registered investment advisor and member of FINRA/SIPC.
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.
The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.
