Beating the stock market requires knowing something important that others don’t.
When I am lucky enough to take advantage of this basic investing truth, I never fear sticking my neck out. I did it with my outlook for 2023, which was followed by my outlook for 2024. Both were pound-the-table bullish – and pretty darned accurate.
But overconfidence is always the enemy. So now I find myself in a slightly uncomfortable position during the thick of the holidays: After trying really hard, I haven’t yet found a basis for a definitive 2025 forecast.
Still, some things are clear and more will be soon. Let me explain.
Good forecasting hinges on assessing economics, politics and sentiment. But stocks near instantly price in all such widely known information and opinions. Success requires vetting possibilities – finding big, definitive forces others don’t see. Then, assign probabilities. If and when one possibility’s probability dominates, that becomes the forecast.
Three 2025 outcomes now look similarly likely to me. Markets could boom another 20%-plus. Or dip slightly. Or just grind out low-single-digit gains. Early in 2025, one of those trends will emerge dominant.
Thirty years ago, I proved that the consensus of professional forecasters’ forecasts reflects what has been pre-priced into stocks fully a year ahead – and, hence, doesn’t happen. That eliminates some possibilities. Currently their forecasts bunch around low double-digit returns. Eliminate that and my three scenarios remain in play, with no way to rank them – yet.
The problem: Politics and sentiment are closing out 2024 in a state of flux.
The happiest scenario, up 20% plus, would shock most investors. Three huge years straight? Legendarily rare. Yet with almost no one expecting it, if economic and political realities slightly top expectations, it could happen.
Dec. 18’s steep tumble, while just one aspect, was super bullish. Since World War II, 114 S&P 500 days dropped 2.5% or more shortly after a bull market high. Stocks rose 12 months out 87% of the time, averaging 20%-plus returns.
Also, stocks rose during 60% of presidential inaugural years since 1925 and were almost always hugely positive when they did.
Of course, sometimes they didn’t. Enter the down 2025 scenario.
Trump’s victory-elated Republicans, maybe paving the way for another trick I proved decades ago – the “Perverse Inverse.” Investors overall lean more Republican than Democratic, viewing the GOP as pro-business and Democrats as anti-business. Hence, when Republicans won the White House, spirits rose – and election year returns averaged 15%. When Democrats won, concern rendered below average 8% years.
But with heightened expectations, inaugural GOP administrations also run disappointment risk. Presidents aren’t kings. They rarely accomplish as much as supporters hope and opponents fear. Hence, all but four GOP inaugural years were negative since 1926 (Trump in 2017 being one of the four). In this upcoming inaugural year, Trumpian hope could exceed reality – particularly with a tight congressional margin.
The third scenario: Stocks rise slightly amid dueling geographic sentiments. Bearish Europe fears its own shadow. America’s bulls tout US exceptionalism powering AI, tech and crypto skyward. These may offset each other – wiggling, waggling, and netting little.
What to do? Two of the three scenarios will fade away sometime in the first quarter as yet unforeseen factors leave one dominant. Lots happens soon in both politics and sentiment, like how Trump’s government finally functions. When I see which scenario will dominate, I’ll be back pounding the table with a definitive forecast for the rest of 2025.
Meanwhile, if you need growth, stocks remain your default. Why? They rise in almost 75% of calendar years. Betting against 3-to-1 odds without a solid leg up on others is a sucker’s game. Exiting stocks rationally requires seeing something big and bad others don’t.
Absent that, take Jack Bogle’s advice: “Don’t just do something—stand there!”
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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