Deconstructing the Crystal Ball
Here Comes 2025!
By: Steven Higgins Financial Advisor, Registered Principal
Here we go! It’s time for overhyped predictions, vague forecasts, and clickbait fear-mongering to begin. As we start the year, the unworn path ahead lies like an empty canvas, where prognosticators of every ilk can lay out their vision of what doom or prosperity awaits us. The political realities of the imminent (although not subsequent) second inauguration of Donald Trump provide a unique narrative to fuel emotions that generally exist on starkly opposite ends of the spectrum. In Allie’s next article, she’ll dig into the base-case realities of a Trump presidency, focusing on three key areas: tax policy, global trade policy (tariffs), and deregulation. Love it or hate it—and you probably do “love it” or “hate it”—we are moving forward. As you can expect, we have a process, and we’re sticking to it. But for now, let’s have a little fun.
Market Predictions
Everyone has an opinion on the market—from major institutions to the talking heads, and even your Uncle Leo. Interestingly, there’s rarely a scoreboard for these predictions. I think everyone who publishes a market forecast should have to defend it at year’s end. Especially Uncle Leo—his relegation to the kids’ table at Christmas depends solely on how many standard deviations off he was with his drunken prediction last year.
Historical Context
Before we dive into predictions, let’s take note of a few facts, anecdotes, and curiosities about the S&P 500 over the last 30 years (1994-2024):
- Average annual return: 8.87%
- Positive years: 23 (76%)
- Negative years: 7 (24%)
- Back-to-back negative years: Only twice—2000-2001, and 2001-2002.
- Three consecutive positive years: Happened five times.
- Single-digit gains: 13% of the years.
- Double-digit gains: 64% of the years.
- Average positive year return: 19%.
- Best year: 1995, with a 34% gain.
- Worst year: 2008, with a 38% loss.
Calendar Year Returns and Their Limitations
An interesting note about the significance—or insignificance—of calendar year returns: Every day of the year marks the beginning and end of a 12-month period. While January through December gets more attention, no 12-month period is inherently more important than another from an investment standpoint. This makes predictions tricky. It’s easier to say lightning will strike than to predict when it will strike.
This calendar-year focus also obscures major events. Let’s look at two major market upheavals:
The Great Financial Crisis (2007-2013)
Widely considered the most consequential economic upheaval since the Great Depression, the S&P 500 dropped over 56% and took more than five years to recover. Yet, if we only look at calendar-year returns, we see only one negative year: 2008 (-38%).
The COVID-19 Pandemic (2020)
The year began with strong employment figures and economic growth, but by mid-February, COVID made landfall. By late March, the S&P 500 saw the fastest 30% drop in history. However, by year-end, not only had the market recovered, but it posted a 16% gain. A calendar-year review essentially erases the investor experience of a 34% crash.
Market Predictions for 2025
Now that you’re primed with historical outcomes and probabilities, let’s look at Wall Street’s predictions for 2025.
Key Takeaways:
- Consensus is positive: 92% of firms forecast double-digit returns.
- Outliers: Stifel and BCA Research forecast negative returns, which is a stark contrast.
- Cautious optimism: Most forecasts fall below the average positive year return (19%).
- Popular forecast range: 10%-14%. Interestingly, the S&P 500 has only delivered returns in that range four times (13%) over the last 30 years.
The Realities of Investing and Emotions
Analyzing returns using calendar years contributes little to the financial planning process. While historical probabilities provide insight, they don’t tell the whole story. Unexpected events—like the tech bust, the Great Financial Crisis, or COVID—are the true disrupters and potential emotional trigger events that lead to bad finical decision and compromise the financial panning process.
For example, during the COVID-induced crash in early 2020, those who sold at the bottom missed not only the recovery, but also a 67% S&P 500 gain by year-end.
Market Volatility is Absolutely Normal and should be Expected
Even if 2025 delivers returns similar to Wall Street’s forecasts, the journey will likely be bumpy. Rarely does a year go by without market volatility fueled by geopolitics, policy changes, or the cyclical nature of markets. The chart below shows calendar-year returns alongside maximum drawdowns—a reminder of the challenges investors face.
Takeaways: Looking at the last 30 years 1994-2024:
- Max declines >20%: 7 years (23%)
- Max declines >10%: 19 years (63%)
- Max declines >5%: 29 years (96%)
- Positive calendar-year returns: 23 years. (All double digit)
- No year ended at the maximum drawdown.
Our Approach
As a wealth management firm focused on financial planning and tax efficiency, we rely on disciplined processes to navigate markets while giving credence to economic realities such as inflation and interest rates. Our approach isn’t about predictions or speculation; it’s about goals, diligence, and process. While markets tend to rise over time, unexpected events are, by nature, unpredictable and therefore unforeseen. Market volatility in response to these events is expected and normal.
Amid the dissonance of fear-mongering and hopes, we find harmony in the chaos. Over time, the market’s turbulence resolves into a more predictable outcome.
It is about You
While we adhere to a defined meeting cadence to address your financial planning throughout the year, we welcome conversations anytime. We value the opportunity to discuss what matters to most to you, when it matters to you.
I hope you’ve enjoyed this satirical (if slightly jaded) deconstruction of the crystal ball. Here’s to a wonderful and prosperous year ahead. I look forward to reflecting on 2025 and seeing how it all turned out!
All S&P 500 market data sourced from Ycharts.com.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Higgins & Schmidt Wealth Strategies, a registered investment advisor and separate entity from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and asset allocation does not ensure a profit or protect against a loss. Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity.
Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
