2025 Investment Outlook

2025-1-2, Michael Thompson

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2024 was another positive year for most investors. Whether you were overweight in stocks, Bitcoin, or gold you likely had 20%+ returns. Already expensive US large-cap stock soared even higher as the S&P 500 returned 25.02%. Gold returned 26% despite expectations for essentially 0 growth in 2024. Bitcoin more than doubled, exceeding $100k for the first time!

In this article, we briefly examine 2024 performance compared to predictions, and then focus on projections for 2025. We include predictions from prominent institutions and individuals on stocks, bonds and other assets. Below is a quick summary of the highlights.

• From the sources you’ll see below, the average prediction is for the S&P 500 to grow 12% in 2025 (median 10.5%). Some expect small cap stocks to earn more, but there's little consensus.
• For Bitcoin, the average prediction was 190k USD; over a 100% return from the 2024 EOY value of $93k. Bitcoin predictions have historically been wildly optimistic though.
• The sources gave an average prediction of 2.1% increase in gold price, with a median of 8%.

The article is organized as described below.

• Stocks
• Bitcoin and crypto
• Bonds
• Gold

Stocks

2024 was another tremendous year for the S&P 500, with a total return of 25%. Predictions at the start of the year averaged about 3.6%—way off the mark, as usual. Since we’ve tracked these things, Wall Street and big bank forecasts have missed the mark by over 15 percentage points on average—more than the entire annual average return!

What’s in store for 2025? From the sources below, the mean expected return for the S&P 500 in 2025 is 12%, and the median is 10.5%. Predictions ranged from 8.9% to 18.9%. Not only did no one expect a negative return, but the lowest prediction was the highest I can recall! As always, take these with a grain of salt. What happened last year is normal—most predictions, even averages, are way off.

Some of the rationale behind these predictions is discussed in the sections below.

Tariffs

While the Trump election is generally considered positive for stocks, tariffs specifically may hurt the S&P 500. Citi analysts believe these could reduce the S&P 500 return by a few percentage points and Barclays foresees a 2.8% hit. In addition to reducing profit margins, tariffs could stoke inflation and keep interest rates higher.

Of course, the timing and magnitude of these tariffs is unknown. Many were proposed as threats, e.g. tariffs on Mexican goods would be based on how much Mexico helps fight illegal drug smuggling and immigration. I view this is just another macro unknown, hard to bet on unless you have inside information.

Immigration

Immigration was seemingly THE issue on which Trump was elected. Although he may want to increase legal immigration, he’s committed to crack down hard on illegal immigration. Brooking sees immigration outflows reducing GDP by 0.1 to 0.4 percentage points. Invesco foresees the removal of these immigrants from an already tight labor market as inflation-inducing. A worst-case scenario of mass deportation includes a combination of both of these phenomena resulting in a recession and inflation, so-called stagflation.

Realistically, it’s hard to imagine hunting down and deporting the millions of illegal immigrants with unknown whereabouts through the country. The amount of time and tax money this would require seems overwhelming. A more tractable goal may be reducing future border crossings while deporting in a slower, more affordable manner. Such a result may not shock the labor market substantially.

Deregulation

Trump pledged to remove 10 regulatory rules for each new rule added. There’s little doubt that regulation slows growth, and that removal of regulation will be a short-term positive for markets. What’s questioned here is the longer-term effects like causing 2008-type implosions.

Tax cuts

Trump reportedly plans to extend the Tax Cuts and Jobs Act (TJCA), avoiding tax increases that would otherwise cut earnings. Trump has also discussed further tax cuts for the highest earning corporations, but it’s unclear exactly if/how those cuts will go into effect.

Like deregulation, these policies will likely be a short-term positive for stocks. The longer-term effect is less clear. Will the sudden reduction of government income be balanced by a reduction in spending or even more drastic debt increases? Either of these could hurt markets in the long-term. Ideally, as Trump would argue, cuts will be paid for by increased investments, growth, and productivity his policies create.

Earnings

Earnings are the primary driver of stock prices. According to FactSet, analysts estimate 14.8% earnings growth in 2025. This is well above historical norms, and would likely support the current, high equity valuations.

Valuations

Valuations—the price of stocks relative to business fundamentals like earnings—are high. The Shiller CAPE is over 37. Roughly speaking, this means you pay about $37 for $1 of annual earnings. That’s a lot! It’s only reached this level twice: before the dot-com bubble burst in 2000 and before the 2022 meltdown. Not a comforting statistic at all!

Geopolitics

Geopolitics continue to be a seemingly underestimated threat to equities. Russia, North Korea, and factions in the Middle East are actively fighting western influence. Further spread or escalation of problems in the Red Sea, Ukraine and Middle East could eventually impact business. For example, cyberattacks could handicap tech companies. More missile/drone attacks on trade routes could further slow and increase shipping costs, setting back globalization and increasing inflation. While such threats always exist, they are on a steeper rise recently.

Market Sections

Once again, we’ll start a year with ex-US and smaller-cap stocks undervalued by most metrics. US large-cap stocks continued their ascent in 2024 and sit at serious nosebleed valuations. The valuation difference between small and large-cap stocks, and US vs. ex-US, should seemingly reduce in the coming years.

Bitcoin and cryptos

Bitcoin is up over 110% in 2024, trading above $93k as of December 31. The bullish predictions for over $100k Bitcoin at the end of the year may not come true, but the coin exceeded $100k for a few days in December! The consensus remains optimistic about Bitcoin in 2025, with an average and median prediction of over 100% gains, see below.

Some items that may influence Bitcoin and crypto prices are discussed below.

Headlines

2024 was absolutely filled with pro Bitcoin news/events: a successful Bitcoin halving, approval (and unprecedented purchasing) of new spot Bitcoin ETFs, and the election of a US president that promised many pro Bitcoin actions. Will there be any more good news left for 2025? A lot of that will depend on whether the US (or other major countries) really begin to hold Bitcoin reserves….

Bitcoin reserves

President-elect Trump vowed to establish a strategic Bitcoin reserve for the US. It’s not at all clear if the US can create this reserve or even if Trump really wants to—politicians often give empty promises like this to gain votes. Some experts like Chris Weston caution that, even if Trump is highly motivated to do this, it may take considerable time to implement.

The US is not the only country flirting with this idea. Russia may be considering a Bitcoin reserve for itself. Hong Kong and Germany may also be considering Bitcoin reserves.

Deregulation

Trump selected Paul Atkins, a crypto advocate, to replace Gary Ginsler as SEC head. Many believe Ginsler was too hard on crypto and stifled growth in the space. His replacement should be a boon, particularly to altcoins in the near term.

Bitcoin treasuries

Microstrategy is probably the most famous for it, but a number of public and private companies now hold Bitcoin treasuries. More business holdings are likely to flow into Bitcoin treasuries this year to help support the price.

Altcoin season

Historically, capital tends to flow from Bitcoin to altcoins the year after a Bitcoin halving. If this occurs again in 2025, it could be a drag on Bitcoin price but help boost altcoins. Some see the convergence of AI and altcoins as a particularly interesting development to watch in 2025.

The passing of the silent generation and baby boomers

While not a 2025 event specifically, the flow of money from older to younger hands may support Bitcoin over the long haul. In the upcoming decade, about 80 trillion USD will be inherited by the heirs of the silent generation and baby boomers. These younger, more computer savvy heirs are likely to invest more of this money in crypto.

Bonds

Bonds fell well short of equities again in 2024. Many expect a repeat in 2025, due to sticky inflation. Vanguard is an exception, citing an extremely low equity forecast due to extremely high US equity valuations.

In their December meeting, the Fed signaled 2 rate cuts in 2025, which is fewer than previously expected. (The Fed’s expectations can be found in their December 18 forecast.) This is likely due to inflation failing to fall back to their target rate. There are rumblings of inflation heading higher, potentially pushing interest rates back up in late 2025.

Last year the 10-year treasury varied from 3.6 to 4.7%, and most expect it to be in a similar range around 3.5 to 5% next year.

Gold

Gold had another great year in 2024 gaining 26%, after 15% in 2023. The current price exceeds all of the predictions quoted in our 2024 outlook. I did say they looked pessimistic! Gold predictions were surprisingly accurate in prior years.

Predictions for 2025 are provided in the table below. The mean prediction is for a 2.1% gain, but the median is 8%. The large difference between the mean and median is due to a few very low predictions (Fitch -24.2% and World Bank -22.3%).

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