For equity investors, a 2025 transition is the best possible outcome, but there are also significant potential headwinds. Let’s take a look back as we enter the new year. First the good news. The market is going smoothly in 2025. First of all, the economy is still strong, with GDP growth of 3%. Second, 2025 is expected to see record profits for the second year in a row, and not just from the tech industry. Undervalued sectors such as health care, materials and industrials are expected to post double-digit profit growth. Profit growth in 2025 (estimated) Technology 21% Healthcare 20% Industrial 19% Materials 18% Consumer staples 5% Energy 4% Source: LSEG It is not profits that grow. Margins are expected to remain near a record 12%, meaning U.S. companies are keeping most of their revenue as profit. .SPX YTD Mountain S&P 500, YTD Stocks 2025: Strong economic tailwinds (3% GDP) Record corporate profits (up 15%) Record net margins (12%) Market headwinds in 2025 The following is a tailwind. There are four of them. First, in order to continue fighting inflation, the Fed may make policy mistakes by refusing to cut interest rates and focusing less on its other mission (employment growth), leading to a deterioration in the labor market. Second, the advantages of the Trump administration (business-friendly, deregulated, M&A-friendly, tax breaks) may be offset by excessive tariffs, thereby harming economic growth. Third, with technology prices approaching all-time highs, the AI ​​story risks collapsing as investors may resist endless spending without significant gains in earnings or productivity. What’s more likely is that tech prices will remain stagnant even as profits continue to improve, leading to lower valuations for tech stocks and (perhaps) higher valuations for undervalued sectors like healthcare and materials. Finally, there is the threat from bond vigilantes who oppose increased spending and threaten to force interest rates higher. Evercore ISI’s Julian Emanuel said in a recent note to clients that 10-year U.S. Treasury bond yields have soared year-to-date. “As 2025 begins, rising long-term bond yields pose the biggest challenge to the bull market. The 10-year Treasury yield hit 4.63% on Friday, its highest level since May. Emanuel noted that yield pressure is “irrelevant” to stock prices, which is to say when stock market valuations are higher, as in 1994 and 2020. 2022) and when stock market valuations are lower (2018), bond yield pressure on stocks may occur. Emanuel also pointed out that for decades, there has been no unified “threshold” for 10-year Treasury yields. , can automatically lead to a correction in the stock market. However, given that the 10-year Treasury yield is currently 4.6%, he believes that rising above 4.75% may trigger a “deeper correction” in the stock market, while above 5% may constitute a “bull market.” threaten”.
A look back at stock market headwinds in 2025 and what could end the bull market | Real Time Headlines
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