Although 2024 ended on something of a sour note, I’m optimistic heading into 2025.
Sure, there will be some ups and downs along the way, there always are, but the strong economy, bullish stock market, and moderating inflation and interest rates are pointing to better days ahead.
With that in mind, I wanted to spend a moment to write about what I see ahead in 2025 that may be of interest to investors.
5 Reasons for Optimism in 2025
• The Dow to 50,000: What an amazing period we live in. Back in 2008 and 2009, the market experienced a shock unlike anything since the Great Depression. Since then, with just one really bad year resulting from an unprecedented (in modern times) global pandemic, the stock market has provided impressive returns to investors. In March 2009 the Dow was at 6,626. In July of 2024, it surpassed 40,000 and on December 4 it peaked at just over 45,000.
With the conditions discussed above, Dow 50,000 seems probable by the end of 2025, driven to a greater extent by the rest of the stocks rather than Microsoft, Amazon or Apple. Not all stocks will perform the same however, and our Cabot analysts will be tracking developments and doing the research to identify likely winners.
• Limited deportations, tariffs and trade wars: If they were to come to pass, as has been discussed, they would drive up inflation, disrupt supply chains, cause furloughs and layoffs, and generally disrupt the U.S. and global economies.
For those reasons, I don’t think these will be done on anything approaching the large scale that has been discussed by the President. I do think there will be much narrower, targeted actions taken. However, these are important areas to keep an eye on for investors. Cabot’s analysts will make sure our readers know what’s going on and what actions to take in response.
• Continuing productivity gains: The productivity gains are substantially driven by adoption of AI in a growing range of uses. The sky’s the limit for these AI-based productivity gains, and there’s no telling how high we could fly, but they will be substantial and will continue to snowball for many years to come.
And there’s also the investment opportunities of the companies that are enabling the AI revolution. Nvidia is NOT the only company seeing huge gains from AI-related products and services.
• Shifting money into stocks: There is nearly $7 trillion that is now sitting on the sidelines in money market funds. Those rates have been higher for the last couple of years, but they have now been easing for some time.
When they tick below 4%, many people will start to feel uncomfortable missing out on the strong stock market gains – and they’ll be right. The growing delta between the money market funds and the market gains will justify the greater risk of equities, and money will shift. Big money. Money that will push demand and prices higher.
• More investing outside the U.S.: 70% of equity value is in the U.S. stock market. This is the result of the stability provided by a long-standing democratic government and rule of law that provides a predictable and stable business environment. With today’s information technology, businesses around the world operate in a more transparent environment that can give more investors confidence in investing in other parts of the world.
And, in spite of the massively lopsided investment in U.S. stocks, the U.S. economy represents about 15% of global GDP. That is still a huge presence but nowhere near the stock market share. It is almost certain that over time more investors will be attracted to larger potential returns elsewhere in the world.
This would be accelerated by a more rapid shift of money from money market funds (see above) to stocks. My colleague Carl Delfeld, Chief Investor of Cabot Explorer has written on this global rebalancing at greater length.
While each of these conditions, taken individually, is reason for optimism, in the aggregate, they point to continued bullishness for investors.
