Your 2025 investment outlook: What could happen in the stock market this year?

With 2024 officially in the rearview mirror, the start of a new year is a great opportunity to reflect on the 12 months that have just passed, and look ahead to what we can expect from 2025.

In particular, this approach can be useful for thinking about investment markets.

2024 was a largely positive year for stock market returns. According to JP Morgan, the US S&P 500 index led the way for returns with gains of 25%, buoyed by the performance of the “Magnificent Seven” technology stocks.

At the other end of the spectrum, the lowest performing index on the list was the MSCI EM, with emerging market stocks still providing returns of 8.1%.

But of course, as is always the case with investment markets, past performance is not a reliable indicator of future performance. Indeed, 2025 will see a range of new events and factors that could impact markets and, in turn, the value of your invested wealth.

So, find out about some of the factors that could affect markets this year, what forecasts suggest might happen, and why it’s important to continue trusting in your financial plan.

Interest rates, trade wars, and global conflict could all influence markets this year

When looking to the year ahead for the markets, it’s important to consider some of the events and aspects that are upcoming in the year and how they could affect the financial world.

The factors below are far from exhaustive, but could provide some insight into what will happen to markets in 2025.

Interest rates maintain an area to watch

Interest rates were a significant talking point in 2024, and will likely continue to be in 2025.

The Bank of England (BoE) cut its base rate twice in 2024, the first reductions since 2020, and this trend appeared elsewhere – AJ Bell reports that there were a total of 175 interest rate cuts worldwide, and just 28 increases.

A reduction in interest rates typically means lower borrowing costs and savings rates, often incentivising growth. So, this could be a good sign for markets as this might create the conditions for business expansion and consumer spending.

Donald Trump’s second term as president could be significant

One of the biggest stories of 2024 was Donald Trump’s election win in the US, an event that could affect markets this year too.

On the one hand, President Trump’s previously pro-business stance could be positive for market growth, especially in the US. Additionally, his pledges to repeal environmental legislation and promote fossil fuel extraction could lower costs for consumers, further boosting economic activity.

However, long before the start of his second term on 20 January, President Trump had already made promises of “America-first” policies, particularly threatening extensive trade tariffs.

The details of these are yet to be confirmed, but Trump has threatened to impose levies on goods coming into the US from countries including China, Mexico, and Canada, as the BBC reported in December.

According to analysis by Morningstar, such a move could increase prices for consumers and also potentially dent economic growth.

Global conflict looks set to be part and parcel

One factor that sadly seems set to continue on into 2025 if global conflict.

The wars in Ukraine and the Middle East in particular could affect commodity prices, as well as wider confidence in markets as the uncertainty of conflict makes investors wary.

There will likely be unexpected events to come

One of the main “known unknowns” every year for stock markets is that there will most likely be unexpected events that affect markets notably – there’s just no way of knowing what these will be.

These could be anything from poor performance in a sector owing to unexpected supply chain issues, to globally significant events such as further conflict or natural disasters.

Forecasters predict uncertainty – but there seems to be a quiet optimism

With the backdrop of these different factors, it’s worth turning attention to the forecasts from some of the biggest banks, providers, and financial institutions to see what their expectations for the year include.

Naturally, it’s important to take predictions like these with a pinch of salt – unless you have a crystal ball, no one can know exactly what will happen. But, these forecasts could still provide some valuable insight into how we can expect markets to move this year.

Firstly, according to Morningstar, falling interest rates will be good news for European markets, especially the UK.

Indeed, managers at Morningstar Investment Management have tipped Europe to be the “most attractive developed markets region globally”. Alongside falling interest rates, the managers cite rising Gross Domestic Product and falling inflation as factors that could spark growth.

JP Morgan follows suit in its Investment Outlook 2025 report, noting that European stocks may benefit from the lower expectations compared to the US. They also point to the UK as a potential growth point.

For Goldman Sachs, the US market is set for another year of growth. The Goldman Sachs Research team has forecast a 10% total return for the S&P 500 by the end of 2025.

Morgan Stanley also echoes this sentiment, stating that 2025 will be the final leg of the current bull market – a period of rising prices and investor optimism – before the next trickier period.

As you can see, while there is broad consensus on how the markets will move, there is no set agreement on exactly what will happen this year.

Your financial plan is built for the long term

With all these factors and forecasts in mind, you may feel uncertain as to how you should manage your wealth in this new year.

Crucially, the solution to this conundrum is simple: do nothing. Your financial plan is built for the long term, and your investments are just a part of a wider strategy that puts you on the path toward achieving your goals.

With this in mind, it’s important to stay calm and not panic when unexpected events do occur. Instead, remember to trust that your plan is designed to withstand volatility and market shocks – these are an inevitable part of investing.

Of course, it’s always possible to refine and adjust your strategy as you go along, especially in response to events that could directly affect your wealth. For example, if interest rates remain higher for longer, there may be an argument for keeping more of your wealth in cash while it’s possible to generate a competitive return.

But in general, sticking to your plan can be the most prudent choice to ensure you stay on track toward your targets.

Get in touch

Need support managing your wealth? We can help at Caliber Financial Management.

Email contact@caliberfm.co.uk or call 01525 375286 to speak to one of our team today.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.