It wasn’t the best way to start a new year.
On Jan. 2, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq all ended in the red on the first day of 2025.
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Stocks ended down last week, continuing a slide that began before the New Year.
Is this a sign of things to come for the next 12 months or just a bad day at the office?
We could be heading into a tumultuous year as Donald Trump returns to the White House promising to impose tariffs and vowing to repeal 10 US federal statutes for every new one imposed.
Looking back on 2024, Jennifer Timmerman, an investment strategy analyst with Wells Fargo, said, “U.S. economic growth once again surprised to the upside while overseas economies saw another challenging year.”
“Turning ahead to 2025, we expect the U.S. to sustain its leading-edge role in global growth, supporting our preferred tilt toward U.S. assets in diversified portfolios,” Timmerman said.
Veteran analyst Tom Lee says tailwinds are stronger in 2025.
Economist expects stocks to be less upbeat
“We believe the U.S. economy and markets will continue to outperform the rest of the world due to relatively stronger demographics, more potent fiscal stimulus, less regulation, and a more dynamic technology sector fueling greater investment spending growth,” she added.
Jeremy Siegel, Wharton emeritus professor of finance, said during the Wharton Business Daily radio show on SiriusXM he expected the stock market to be less upbeat in the coming year.
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“We’ve had two really fantastic stock market years,” he said. “They exceeded my expectation this year with another 20% plus gain on top of what we had in 2023.”
Siegel said he expects 2025 to be more muted, forecasting growth in equities from zero to 10%. A correction—a 10% drop—is certainly a possibility.
He saw the possibility of “some cool off” with tech stocks. Siegel noted that even as AI is trending strong, “there seems to be possibilities of more competition and some slowdown in that area” in 2025.
He said tech companies led by the Magnificent Seven—a septet of tech titans including Nvidia (NVDA) , Tesla (TSLA) , Microsoft (MSFT) , and Apple (AAPL) —have “brought home the bacon.”
“They produced earnings growth of 25% to 30%,” Siegel said. But they’re one-third of the market. I could see them cooling in 2025 to maybe being flat on the whole.”
And then we have Tom Lee, head of research for Fundstrat and the equity research firm’s founder.
Lee, a Wharton graduate who predicted the market rally in 2024, has been analyzing stocks on Wall Street since the early 1990s.
He took a significant amount of flak in December 2023 for his bullishness, yet stocks continued gaining momentum, rising by double-digit percentages in 2024.
Veteran analyst says buying the dip makes sense
Lee believes the tailwinds that helped 2024 gain more than 20% for a second straight year remain in place.
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In fact, those tailwinds “are arguably stronger in 2025 than they were in 2024,” he added.
Last month, Lee said that the S&P 500 will likely advance to around 7,000 by this summer before ending the year at around 6,600.
In the near term, Lee acknowledged that 2024 “ended on a whimper,” but historical precedent suggests that this lackluster year-end could set up a strong January.
The last trading week of 2024 saw four straight daily declines, and when the Fundstrat Data Science team looked at historically similar precedents, they found reason for constructiveness.
Since 1928, there have been 10 previous instances of three or more consecutive daily declines in the final trading week of the year.
Stocks were up one month later 80% of the time, with a median gain of 3.6%.
Looking further out, Fundstrat said in a Jan. 5 research note that stocks were up 12 months later 80% of the time as well, with median gains of 12.4%. That doesn’t mean this coming week will necessarily see a bounce, however.
Mark Newton, Fundstrat’s head of technical strategy, observed, “while I expect that this consolidation should be complete by mid-January, it’s hard to claim technically just yet that lows are in place.”
Lee said this means that a continued pullback might be possible, but that would represent a buying opportunity.
“Buying the dip continues to make sense, in our view,” he said.
Related: Veteran fund manager delivers alarming S&P 500 forecast
