There are as wide a variety of negative potential catalysts for 2025 as we’ve seen in some time. In no particular order: inflation, rising unemployment, geopolitics, China deflation, EU economic slowdown, falling commercial real estate values and underwater loans, delinquencies on consumer debt, Fed policy – just to name the big ones.
It is not unreasonable to think that Trump policies on tariffs and mass deportations could contribute to inflation.
However – the risk of adjusting your long-term investments out of fear of any of these catalysts before they become evident is high. Never forget Wall Street was nearly unani
It is time. No walk-up music, no preamble – here are my Predictions for 2025.
The high for the S&P 500 in 2025 will be 6,325
Almost a year ago, on December 20, 2023, I predicted the S&P 500 would hit 6,120 in 2024. On December 6, 2024, the S&P 500 hit a high of 6,099.97. I missed by a measly 20 points…
If you’re wondering what kind of mystical incantations I applied to get the most accurate forecast in the known universe, I’ll tell you: it’s earnings and sentiment.
Earnings for the companies of the S&P 500 are the easy part. These are the biggest companies in the world. They know their businesses inside and out. And they share information with analysts. The result is that earnings forecasts are pretty accurate. The light-colored bars in the chart below are analysts’ forecasts, the dark bars are the actual results.
But it’s actually simpler than that. FactSet Research says:
Overall, analysts expect the “Magnificent 7” companies will report earnings growth of 33% in 2024. On the other hand, analysts predict the other 493 companies will report earnings growth of just over 4% for 2024.
In other words, the Magnificent 7 companies (Amazon, Microsoft, Tesla, Google, Apple, Meta and Nvidia) are the key. If there’s a weak link in the Mag 7, it’s Tesla.
Tesla trades for 15X revenue. You could look at Nvidia valued at 30X revenue and think Tesla doesn’t look so bad. But each company did the roughly the same amount of revenue over the last 12 months ($96 billion for Tesla and $96 billion for Nvidia) – yet Tesla reported $14 billion on EBITDA earnings and Nvidia reported $60 billion in EBITDA. That gives Nvidia a somewhat reasonable forward P/E ratio of 30, while Tesla sits at a very unreasonable forward P/E of 140.
Betting against Elon Musk has not worked for anyone (except on short time frames). And I am not advocating that you do so now. However, Tesla is grossly overvalued and that matters for my forecast…because of sentiment…
Investor sentiment is what drives P/E ratios (how much investors are willing to pay for earnings). Coming into 2024, I was convinced that investors were underestimating the power of the Mag 7, that investor sentiment would improve and that P/E ratios would move higher.
The opposite is true for 2025. The average analyst price target for the S&P 500 in 2025 is 6,678. That’s too bullish…
My 2025 S&P 500 target is 6,325.
January Correction (It won’t be the only one)
It’s said that as goes January, so goes the year. I hate to keep on dishing the bad news, but I think the odds are that we get at least a 10% correction in January. It won’t be the only market correction in 2025, either…
Rising unemployment and resurgent inflation will put the Fed in a very tight spot. Raise rates? Cut rates? We could see both next year. Volatility returns. Buckle up!
Speaker of the House Elon Musk
How far can Elon Musk’s ambition take him? Well, there’s no rule that says the Speaker of the House has to be a member of Congress. If Musk decides he wants to get even more involved in directing policy, he has the Twitter/X platform at his disposal. I know this one is a longshot to actually happen, but I bet it gets discussed as a possibility.
Bitcoin Doubles Again
The easiest way for the new billionaire class of incoming Cabinet appointees and advisors to effect a massive wealth transfer to themselves is to establish a Federal Government Bitcoin Reserve. This one seems inevitable. Own Bitcoin itself or one of the Bitcoin ETFs.
Best Bet to Double Your Money in 2025 is….
We’ve written a lot about small modular reactor (SMR) stocks at Outsider Club. The first was NuScale (NYSE: SMR) at $6 a share back in June. We’ve written about Nano Nuclear (Nasdaq: NNE) and Oklo (Nasdaq: OKLO).
Each of these companies has a very clear path to deployment and will be helped by regulatory changes that are likely under the Trump administration. NuScale and Oklo each have market caps around $2 billion, and Nano Nuclear is $800 million – they are all still small enough to have substantial upside.
NuScale was the first SMR stock I recommended and you always remember your first with extra fondness. But there can oly be one. So the best pick to double your money is the one that’s backed by ChatGPT co-founder Sam Altman – that’s gotta be a marketing edge, doesn’t it? So my top pick to double your money next year is OKLO (Nasdaq: OKLO).
Cheers,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
You Might Also Like:
Hammer’s Predictions
https://www.outsiderclub.com/the-ghost-of-nostradamus-2025-predictions/
My 2024 Predictions
https://www.outsiderclub.com/2024-in-review/
Fed Can’t Fix This
https://www.outsiderclub.com/unemployment-inflation/
