My 'Predictions': Five Things That Stocks Are Sure to Do in 2025
Also, let me show you how to make your own market forecasts....
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It is that time of year when market pundits roll out their predictions about the stock market's performance in the year ahead. Over the past 30 years, the S&P 500 has had an average annual return of about 10.7%, so the typical consensus view of these market savants is that the market will go up about 10% in the following year.
Sometimes, they are right, but most of the time, they aren't. In 2024, the predicting pundits did a particularly poor job. The average target price was 4,861, which is currently about 20% too low. Even the most optimistic target of 5400 isn't even close to the current level of 6050.
We can go on at great length about how inaccurate these predictions tend to be, but it is a game that Wall Street and the media like to play, and there is always a lucky pundit who comes fairly close and can build a whole career on that one lucky guess. There has never been a pundit who has consistently predicted the twists and turns in the market with a high level of precision.
Even if it was possible to consistently make these market predictions, they are generally useless because the timing of the twists and turns during the year determines your returns to a far greater degree than the ending point. What do you do with a prediction of the year-end level of the S&P 500? Buy an index exchange-traded fund and then sit passively and hope for a gain?
Predictions about the economy are equally useless. Recent economic predictions about inflation and growth have been wildly wrong, and of course, there is a flood of news predictions about what will happen when the Trump Administration takes office. Even if you do have some clues about the economy, there is a very loose correlation with the stock market.
Here are some things about the year ahead that we can predict with certainty.
1. There will be both rallies and corrections of various lengths and magnitudes. The one great certainty of the market is cycles. The long-term cycles and short-term cycles are the key to creating market wealth, which is to stay with the strong cycles and reduce risk in the weak cycles.
2. It is impossible to time cycles with precision. Conventional Wall Street and the business media love to make predictions, but the much more effective approach is aggressive reaction when conditions change. Rather than guess when conditions will change, react as it becomes apparent that a cyclic is shifting
3. There will be unanticipated and surprise news events. You can count on something that no one anticipated happening. A good example in the past few years is how wrong the experts were about inflation being transitory and also how wrong they were about higher interest rates triggering an economic slowdown. Currently, market participants are very optimistic about positive news from the Trump Administration, but there will be many surprises along the way that can't be predicted.
4. Focus on finding strong sectors and predicting market themes. Regardless of what the broad market does, there are always some key themes, like AI or Bitcoin, that produce the biggest returns. Recently, we have seen things like quantum computing and space exploration attract great interest. I don't know what themes will dominate in 2025, but if we monitor the hottest stocks, it will become quite evident what they are.
5. There will be some fantastic stocks and some big losers. The big money isn't made by trying to time the market. The big money is made by picking the best stocks and trading them effectively. Pundits and the media would rather talk about timing the market because they aren't very good at finding great stocks at an early point. You aren't going to discover the next big winner by listening to CNBC, but you might find it by reading some of the columns on TheStreetPro.
One of the biggest problems with making predictions about what the market will do in the year ahead is that it creates a bias. Once you make a prediction, then you have an inclination to stay with it and to look for arguments and data to support it. You are no longer truly objective, and it becomes more difficult to change your mind.
Anyone who has been active in the market for a while has seen hardcore bulls and growling bears that spin everything to support the views that they already hold.
My prediction for 2025 is that it will be a great year for stock pickers and active traders who are quick to react to changing conditions.
At the time of publication, DePorre had no position in any security mentioned.
