With AI and possible U.S recession, this Wall Street investor says stock markets may tank in 2025 (2024)

FAQs

Will the stock market crash in 2025? ›

Wall Street investor: With AI and possible U.S recession, this Wall Street investor says stock markets may tank in 2025 - The Economic Times.

Key takeaways. In light of recent economic developments, J.P. Morgan Research has raised the probability of a U.S. and global recession starting before end-2024 to 35%. The probability of a recession happening by the end of 2025 remains unchanged at 45%.

During a recession, stock prices typically plummet. The markets can be volatile with share prices experiencing wild swings. Investors react quickly to any hint of news—either good or bad—and the flight to safety can cause some investors to pull their money out of the stock market entirely.

Veteran investor David Roche expects a bear market in 2025, caused by smaller-than-expected rate cuts, a slowing U.S. economy and an AI bubble. Those factors could cause a bear market of minus 20% in 2025, maybe starting at the end of this year, but the Fed will have room to adjust, he added.

Overall, Yardeni Research forecasts S&P 500 operating earnings at $250 in 2024, up 12% vs 2023. He puts them at $270 in 2025 (up 8%) and $300 in 2026 (up 11.1%). These figures compare with analysts' consensus forecasts of $244.70 in 2024, $279.70 in 2025 and $314.80 in 2026.

While many experts are making predictions about whether the market will crash in 2024 or how severe the next downturn will be, it's impossible to say with certainty where stock prices will be in the short term. However, the market's long-term performance is all but guaranteed to be positive.

Lokar anticipates the recession will be mild but will demand that companies plan for a downturn to ensure their companies are protected and to even find opportunity during the slower business cycle. “This is not going to be as bad as 2008 or 2009.

Amid anticipated below-trend growth in 2025, core inflation falling to near the Fed's 2% target, and an unemployment rate rising moderately above current levels, we expect the Fed's rate target to end 2025 in a range of 3.25%–3.5%. That would be 2 percentage points below its current 5.25%–5.5% target range.

Fed officials look poised to cut interest rates later this year, but the outlook on a recession still looks uncertain. The US has a 56% chance of slipping into a downturn by June 2025, according to the latest estimate from New York Fed economists.

Where to put money during a recession. Putting money in savings accounts, money market accounts, and CDs keeps your money safe in an FDIC-insured bank account (or NCUA-insured credit union account). Alternatively, invest in the stock market with a broker.

Is it better to have cash or property in a recession? ›

Cash. Cash is an important asset during a recession. Having an emergency fund to tap if you need extra cash is helpful. This way, you can let your investments ride out market lows and capitalize on long-term growth.

Cyclical stocks -- companies in industries highly sensitive to the economic cycle -- are often the hardest hit during a recession.

As a whole, analysts are optimistic about the outlook for stock prices in 2024. The consensus analyst price target for the S&P 500 is 5,090, suggesting roughly 8.5% upside from current levels.

"While stocks should stabilize in the near term, the medium-term direction is to the downside," writes BCA. "We continue to expect the US to enter a recession in late-2024 or early-2025." "We expect the S&P 500 to drop to 3750 in 2025 and the 10-year Treasury yield to fall to 3%," BCA adds.

The benchmark S&P 500 (. SPX) , opens new tab will end 2024 at 5,600 points, according to the median forecast of 41 equity strategists, analysts, brokers and portfolio managers collected Aug. 8-20. The index closed at 5,608 on Monday.

Experts have mixed opinions on the timing and severity, but JP Morgan estimates a 35% chance of recession by end-2024 and 45% by end-2025.

Returns in the S&P 500 over the coming decade are more likely to be in the 3%-6% range, as multiples and margins are unlikely to expand, leaving sales growth, buybacks, and dividends as the main drivers of appreciation.

On April 12, 1994, the Dow Jones Industrial Average closed at 3,681.69. Over the trailing-30-year period, this widely followed index has increased at an annualized rate of 8.09%! If this superior rate of gains were to persist, the Dow could reach 50,000 before the calendar changes to 2028. Image source: Getty Images.