2025 Stock Market Outlook: Tailwinds and Headwinds Ahead

The stock market is poised for a strong start in 2025, driven by a solid economy, record profits, and healthy profit margins. However, investors should be aware of significant potential headwinds that could impact the bull run.

Key tailwinds include a growing economy with 3% GDP growth, record corporate profits, and near-record net profit margins. Technology is expected to see a 21% earnings growth rate, followed by significant increases in health care (20%) and materials and industrials (19%).

On the other hand, four major headwinds threaten to disrupt the market’s momentum:

1. **Federal Reserve Policy Error**: The Fed may overreact to inflation concerns, cutting interest rates too aggressively or ignoring its job growth mandate, potentially leading to a deteriorating job market.
2. **Tariffs and Trade**: The Trump administration’s trade policies, although business-friendly, may be countered by tariffs that harm growth and disrupt global supply chains.
3. **AI Collapse**: Tech prices near records could lead to an AI collapse, as investors revolt against excessive spending without tangible earnings gains or productivity increases.
4. **Bond Vigilantes**: Rising long-end bond yields pose a significant challenge, potentially forcing interest rates higher and triggering a “deeper correction” in equities.

According to Evercore ISI’s Julian Emanuel, the 10-year Treasury yield is currently at its highest levels since May (4.63%), posing a major threat to the bull market. A move above 4.75% could trigger a deeper correction, while a surge above 5% could signal a “bull market threat.”

Source: https://www.cnbc.com/2024/12/30/a-review-of-the-stock-market-headwinds-into-2025-and-what-could-potentially-end-the-bull.html