Macro 2025 Predictions

Okay, this article will probably be a bit shorter than my usual 800 to 900 word ones, just because it is Christmas, and I am writing this while hiding from my family.

Last year, my predictions for 2024 were pretty optimistic. If I remember correctly, I predicted like a 14% gain for the S&P 500, which turned out to be about 50% short of reality, something that I was not too displeased about. My prediction for 2025 pretty much matches my prediction from last year, but we will get to that after we take a brief glance at what everyone else is saying.

Nearly every firm I can find is calling for about 10% growth, and a price target in the upper 6000-s, around $6700 or $6800. Bank of America, Deutsche Bank, UBS, Morgan Stanley, etc… are all optimisitc. These banks think that Donald Trump will be able to fire up equities, although Joe has done a pretty good job so far, and that the economy will keep rolling, despite high valuations.

I would tend to agree with that assessment, but I think that I am even more optimistic than these banks are. I am targeting a price of about $7500 for the S&P 500 as of this time next year, a 25%-ish gain from today. Here is why:

Mergers and acquisitions will be up wildly next year. It has taken about three years now for the M&A wing of the market to warm up, with the IPO wing of the M&A wing still pretty much ice cold, but 2025 should be red hot, espescially in the latter six months. Interest rates will be a tad lower, meaning that money will be cheaper to move around, the market is kind of due, with there being significant pent-up demand, private equity is looking stronger than it has in years, Trump’s administration should be more lax, and companies will be looking for growth paths, even inorganic ones, as their balance sheets look better and better. When M&A is better, the market is generally stronger. There is more optimisim, more people are making more money, big companies can buy out smaller ones, and there is just more money flowing around. When there is more money moving and people are feeling happier, the market moves upwards.

Invidiual stocks look better than large ETFs. Right now, the market is crazy overvalued, as a whole, meaning that ETFs like SPY or QQQ, which track large segments of the market, are overvalued. If all of the ETFs are crazy overvalued, retail investors and institutional investors turn their focus to individual stocks, many of which are pretty cheap. The market’s overall valuation is being distorted by mega-expensive mega-cap stocks like Tesla, a company with an insane 125 P/E. When investors pour money into cheaper individual stocks, their prices, obviously, go up.

Overseas markets are due to finally get restarted. Europe, Canada, the UK, China, Japan, and many more have been virtually flat since the pandemic, and their actual economies have been sluggish or have lost value. These countries are predicted to finally kick their economies into gear, which should drive more money around the world. This economic restart will be helped on by a worldwide cutting of interest rates, unless you live in Russia.

The election, while, in my opinion, likely bad for the country, will have little to marginally positive effects on the market. Some people, like Mike Wilson at Morgan Stanley, see the US election, and specifically Donald Trump vaulting into the presidency, as potentially damaging, potentially gumming up the works. I disagree. Presidents, unto themselves, just do not have that much influence over the wider markets in such a short time period. The absolute most, realistically, that Donald Trump could influence the market, would be approving or stopping a merger or acqusition via the FTC. In this case, Donald Trump would be far more likely to approve mergers or acqusitions, making him far more amenable to the market.

And I know you are screaming “Tariffs Henry, triffs.” I do not think Donald Trump will implement tariffs. They are too destructive, and I do not think he cares that much about fulfilling that campaign promise. I am sure he will use them as a threat when he sits down at the negotiating table with our European allies and Chinese enemy, but I just do not believe he will implement tariffs in any meaningful way, which is why I own a stock (GigaCloud Technology) that would get wrecked by tariffs.

There are some minor things around the fringe that could push the market above a 25% return next year, and there are some things around the fringe that could pull the market down well below a 25% return, but I am pretty sure that I am right, per usual.