Last month, during the thick of the holidays, I found myself in a rare though not totally unprecedented predicament: I wasn’t sure which way to bet on the stock market in the year ahead.
In my December column, I told you there were three possible 2025 outcomes – all of them seemingly likely, and to a vexingly similar degree. I also told you that I’d come back to you when I could conclude which is, in fact, the most likely.
Well, I’m back – and with an answer that has surprised me in more ways than one.
Recall the three possible outcomes I had outlined: A minor decline, a small single-digit positive year, or another big year like 2023’s and 2024’s gains. I also said the latter was the least expected and would shock the most people because three big years in a row is legendarily rare.
Now, I dare say – brace for the legendarily rare. That’s because I believe that what is most likely is a stock market gain of 15% to 25% – maybe slightly bigger.
There is, however, also one major twist here that came even less expected for me – and which hence may be even more universally shocking. The twist is that European stocks should lead, quietly but strongly, as my forecast above is for the MSCI World index. The S&P 500 should lag Europe.
What has changed since year-end? As I said then, I would keep researching for signs of sentiment that would swing direction and that the swing would happen soon.
I also told you that US investors were optimistic while foreign ones were pessimistic. As it turns out, the overseas pessimism is extreme – vastly more depressed overall than Americans are optimistic. Hence, even a moderate year for foreign GDP, particularly European, would lead to huge positive surprise for them. They’re just more sensitive right now.
Decades ago, behaviorists proved American investors hate losses more than they love comparable sized gains – about 2 ½ times as much. My former research partner Meir Statman and I then deployed the same methodology showing UK and German investors are even more skittish about losses, by factors of 4 to 1 and 6 to 1, respectively.
Europeans are just more risk averse than Americans. I’ve long known that. Seemingly few remember it.
Now, I’ve discovered how much more that is the case right now than usual, as absolute Trump terror overwhelms Europeans — hugely more than was measurable in December. It is shockingly so, almost beyond words. Since the US election, they have become extraordinarily pessimistic. It is as if they were MSNBC commentators, only without the occasional smiles and jokes.
And, so, European stocks are too depressed and, also but less so, most non-US markets. So, most, but of course not all, are quietly beating the S&P 500 year to date. Britain, Germany and Israel have actually hit new all-time highs in 2025.
Coupled to that, inherent in the make-up of American versus foreign stocks, value stocks, meaning statistically cheaper on earnings and other measures than pricier growth stocks, should outshine growth stocks — for the first sustained time in years.
But why do I say it is “inherent”? In industry sectors America and growth stocks are intertwined. By market cap weighting almost all growth stocks are American. Tech and Communication Services total over 40% of the S&P 500, almost none of Europe.
Hence, when growth stocks like the Magnificent 7 lag the market, as evidenced by the Nasdaq lagging the S&P 500 even when both rise, value must be leading. Europe too! But this is more than just sectors. It is also country sentiment.
You doubt me? OK, but it is happening right in front of your eyes. Grab your iPhone. Use its normal Apple News stock market app to look up the S&P 500, the Nasdaq composite, and MSCI Europe. There it is. Europe leads.
And if you look at specific European countries you will see it broadly spread except Denmark (which is mostly Novo Nordisk weakness). Said otherwise, Europe is leading the S&P 500 which is leading Nasdaq.
While at it, I’ll add that I expect Emerging Markets stocks to lag, as they fall mostly across categories I expect to lag like utilities and struggling commodities.
So please – cheer up and mind your geography as you think about stocks this year. And Happy 2025.
Ken Fisher is the founder and executive chairman of Fisher Investments, a four-time New York Times bestselling author, and regular columnist in 21 countries globally.
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