Landing on a 2025 stocks forecast is a tricky business. Both 2023 and 2024 were some of the best times for investors. Each of those years produced total returns in double digits. But will 2025 also be a booming year for equities? History says it’s unlikely, while analysts hold differing positions.
Since 1942, three-year annual gains of 10% have occurred just three times. Only twice have there been four consecutive years of double-digit gains and only once has there been a five-year run.
“There is certainly a possibility that we have another gain that’s double-digit,” says Sam Stovall, chief investment strategist at CFRA. “The problem is how do we know if we will have a gain or a loss.”
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2025 stocks forecast: gradual erosion
There are fundamental reasons to be cautious about future market gains, particularly in the first year of President-elect Trump's second term. “2025 could be a year of two halves,” says Daryl Jones, director of research at financial research company Hedgeye. Jones sees the first half as a continuation of the excellent performance of 2024. That should include solid economic growth and modest inflation, plus cuts in interest rates by the Federal Reserve. That should help push stock values higher.
However, inflation likely will take off in the second half, Jones says, as a result of Trump’s promises to cut taxes, reduce business regulations and impose tariffs on imported goods. “The risk is all of these changes will be inflationary,” he says. “Such a move could not only mean the Fed stops cutting rates but also may mean hiking them aggressively.” Higher interest rates typically hurt the stock market.
The case for optimism
Art Hogan, chief market strategist at B. Riley Wealth Management, is more optimistic. He forecasts gains of 10% for stocks in 2025. To that, you could add dividends for an extra healthy 11.3% yield. That will partly be driven by ongoing rate cuts by the Fed and the continuation of the 21% corporate tax rates introduced in 2018 under the previous Trump regime.
However, that forecast is Hogan’s base case. He knows there is plenty that could go wrong. Trump’s plans for blanket tariffs on all imported goods “would be inflationary due to the additional cost of those tariffs on the price of goods, and interest rates would have to stay higher,” he says. “If the tariffs hit everyone, that could derail the economy.”
The case for pessimism
Pete Earle, an economist at the American Institute for Economic Research, is even more pessimistic than either Jones or Hogan. "Trump is inheriting an economy on the weak side," he says. The S&P 500, which trades at 22 times forward earnings compared to under 16 in 2022, is "vastly overextended," he says.
An obscure economic metric, known as the Sahm Rule, was triggered in August 2024 and indicates that a recession has begun. The Sahm Rule applies when the unemployment rate rises 0.5% or more compared to the minimum three-month average over the last 12 months. "This rule has a lot of fidelity," Earle says. That said, the real-time Sahm rule indicator has ticked down recently, according to the Federal Reserve Bank of St. Louis.
There are also worrying indicators that inflation is alive and well. Earle points to the prices of many items in the consumer price index rising 4% or more a year. That's at least twice the 2% target the Fed wants to reach as soon as possible. Some index components have seen epic price rises, including car insurance rising 16%, shelter up 4.9% and tobacco and smoking products up 6.9%. This phenomenon may force the Fed to raise rates swiftly.
Perhaps the most powerful message is conveyed by actions. Legendary investor Warren Buffett has been dumping stocks like they are going out of fashion, recently selling $127 billion, bringing his cash balance to more than $300 billion. Says Earle: "It speaks volumes."
Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.
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