A New Year, A New Outlook: 10 Stock Market Predictions for 2025
As we step into 2025, investors have plenty to be grateful for. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all reached multiple record-closing highs in 2024. However, Wall Street’s focus is always on what’s next. While there’s no foolproof way to predict market moves, certain events, indicators, and metrics can provide valuable insights.
A Correction on the Horizon?
The Dow Jones, S&P 500, and Nasdaq Composite are primed for a correction of at least 20% from their record-closing highs. With the S&P 500’s Shiller price-to-earnings ratio hovering near its 2024 high, history suggests a downturn may be looming. Since 1871, there have been only six instances where the S&P 500’s Shiller P/E has surpassed 30 during a bull market, including the present. Following the previous five occurrences, the S&P 500, Dow Jones Industrial Average, and/or Nasdaq Composite shed 20% or more of their value.
Cryptocurrency Bubble Bursts?
The cryptocurrency rally is likely to come to an abrupt halt. MicroStrategy’s leveraged approach to buying Bitcoin may have fueled the outperformance of crypto, but similar strategies have failed in the past. As the company seeks approval to increase its outstanding share count, the unsustainable rally will likely come to an end.
AI Hype to Fade?
Nvidia, a major beneficiary of the AI boom, may see its momentum slow. History has shown that game-changing innovations often experience an early-stage bubble-bursting event. With most businesses lacking a clear plan for their AI investments, investors may have overestimated the adoption and utility of this new technology. Additionally, Nvidia’s gross margin decline suggests competition is increasing and AI-GPU scarcity is waning.
Healthcare Stocks Poised for a Rebound?
Healthcare, one of the worst-performing sectors in 2024, may be due for a comeback. With the risk-versus-reward profile for healthcare stocks now very favorable, stalwarts like Pfizer and Johnson & Johnson are valued at or near decade-lows, with high dividend yields.
Consumer Cyclical Stocks May Disappoint
Consumer cyclical stocks, which have performed well in 2024, may struggle in 2025. Persistently high shelter inflation and aggressive forward P/E ratios for companies like Tesla and Chipotle Mexican Grill raise concerns about sustainability.
The Magnificent Seven May Underperform
The “Magnificent Seven” – Apple, Nvidia, Microsoft, Alphabet, Meta Platforms, and Tesla – have driven the bull market rally. However, some members of this group have become valuation eyesores. Apple’s growth engine has stalled, while Nvidia’s trailing-12-month price-to-sales ratio is historically consistent with market-leading businesses in a bubble.
Share Buybacks to Increase?
With Donald Trump’s return to office, corporate income tax rates may be further reduced, giving businesses the green light to increase share repurchases. This could have a positive impact on earnings per share for S&P 500 companies.
Stock Splits to Drive Select Stocks
Investor euphoria surrounding stock splits should remain a key catalyst for select stocks in 2025. Companies like Meta Platforms and Costco Wholesale may make history with their first-ever stock splits.
Cannabis Stocks to Get a Boost?
The U.S. Drug Enforcement Administration’s expected rescheduling of cannabis under the Controlled Substances Act could save pot stocks a lot of money come tax time, potentially igniting a rally in the downtrodden industry.
Microsoft to Become the Largest Public Company?
As the AI bubble forms and/or bursts, Microsoft is well-positioned to end 2025 as the largest public company. With double-digit sales growth from its cloud- and AI-driven operating segments, Microsoft can rely on its legacy operations to generate significant cash flow.
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