We are two years into a bull market, which has seen the S&P 500, Nasdaq and Dow Jones soar thanks to enormous growth in emerging technologies like AI and autonomation. But with jitters over stubborn inflation and fears over tariffs, experts have urged caution in the year ahead. While forecasts remain largely positive, investors could do well to tread lightly as they enter the New Year, which could prove to be volatile.

Investors urged to remain cautious in 2025

Investors have been advised to maintain an especially cautious posture in 2025. The CEO of the deVere Group, Nigel Green, has said he was remaining vigilant ahead of what could be a looming market correction. Commenting, he said:

“It is a time to be cautious. We have had 56 highs in the S&P this year, it is up 27 per cent. Right now, for me, some caution.

“As we look at it. Lots of good things are priced in. We all know that at some stage there has to be a correction. Is it going to be this year? Maybe not.

“But it is for me at least, a time to be more cautious than normal.”

The comments came amid the Dow’s longest losing streak since 1974 after the Fed signalled it would be making fewer rate cuts than analysts had expected in 2025. Although the decline has now been arrested, after the Dow closed 0.1 per cent up on Thursday, it speaks to investor uncertainty about the year ahead, with the threat of trade wars and tariffs on the horizon.

However, Mr Green said while the prospect of higher inflation for longer poses challenges, it could also represent an opportunity for smart investors:

“Sectors reliant on cheap borrowing, such as tech and growth stocks, could face increased headwinds if rates remain elevated. Investors should reassess their exposure and prioritise sectors that benefit from inflation and steady economic demand, such as energy, utilities, and healthcare.

“Strategic investors will seize this moment to reposition themselves for the new reality—a reality where caution, vigilance, and adaptability are paramount.”

Forecasters predict markets to climb in 2025

Forecasters continue to predict that 2025 will be a good year for the stock market, with brokerages predicting an average gain of 9.1 per cent next year. That’s according to a Bloomberg analysis of 376 forecasts which found investors were continuing to see opportunity amid potential difficulty.

That view was reflected by Empower’s Marta Norton, who predicted ‘modest returns’ for investors in 2025 ‘with volatility along the way.’ Norton was one of a number of experts who shared their forecasts for 2025 with Yahoo Finance, alongside David Rosenstrock of Wharton who said the New Year could be a good one for small and mid-cap stocks as they look set to benefit the most from fresh cuts to corporation tax.

Overall investor sentiment remains positive with investors expecting a third year of successive gains in 2025. That’s according to a December report from Reuters which showed most Wall Street firms think the S&P 500 will rise to between 6,000 and 7,000 by the end of 2025. Speaking to the outlet, Garrett Melson at Natixis Investment Managers predicted gains of 10 per cent next year, but warned investors to ‘temper their animal spirits.’

“We’ve been on quite the tear coming off the lows back at the end of 2022. It’s been pretty eye-watering,”

“Animal spirits are certainly running pretty wild right now, but you might need to temper that a little bit as you start to move through the year,”

It is a view shared by Fidelity Investment Director Tom Stevenson, who predicts gains amid a mixed picture. In his 2025 forecast, he told investors:

“Smaller US companies are more likely beneficiaries of Donald Trump’s America First policy programme, but big, liquid stocks have enjoyed a pre-emptive sugar rush too.

“The Presidential cycle points to a slower next two years than we’ve enjoyed in the last two. And many other markets around the world, including our own, are much better value than Wall Street. Putting year-end numbers on this, I’d say: 6,300 for the S&P 500 and 8,500 for the FTSE 100.”

The stock market could go up 20 per cent in 2025

Analyst consensus remains that the market will climb around 10 per cent in 2025, but some observers see it gaining double those forecasts. Pointing toward US government deregulation plans and advances in AI, Barron’s deputy editor Ben Levisohn sees a scenario where stocks are pushed as much as 25 per cent higher. In a December article, he wrote:

“There is a good chance the S&P 500 will gain far more than Wall Street expects due to the combination of the incoming Trump administration’s deregulation drive and the continued advance of artificial intelligence.

“Either one on its own would probably be enough to push the market higher. Together they could act as rocket fuel and send stocks into the stratosphere—or, up 15 per cent to 25 per cent…

“The combination of AI and deregulation has the potential to boost profit margins, increase earnings, and send stocks meaningfully higher than strategists currently estimate.”

However, the former stock trader turned financial journalist had a word of warning for investors over potential pitfalls ahead:

“Further inflation could force the Fed to stop cutting rates and raise them instead. And then there’s the possibility of a recession, something investors seem to have put out of their minds even as the unemployment rate rises and other signs of a slowdown emerge.”

What will Bitcoin be worth in 2025?

Bitcoin is likely to surge in value by 50 per cent and reach a new all-time high of $150,000 by mid-2025. That’s the bold prediction from the deVere CEO Nigel Green, who accurately forecasted the BTC price reaching new heights in recent months.  Mr Green said Bitcoin would be a ‘must have’ asset in 2025:

“Bitcoin is up an astonishing 134 per cent year-to-date, and we believe the stage is set for even greater highs in the months ahead.

“I’ve previously predicted that following Donald Trump’s inauguration, it could surge to $120,000.

“I now believe growing investor FOMO (fear of missing out) and increasing institutional investment can be expected to push the price to $150,000 by mid-2025.

“This dual momentum is fuelling the crypto market’s resurgence and establishing Bitcoin as a ‘must-have’ asset in portfolios.”

Mr Green isn’t the only Bitcoin bull. Analysts optimistic about the performance of the cryptocurrency in the New Year, with it standing to benefit from the incoming Trump administration whose stated aims include the creation of a strategic Bitcoin reserve. A recent report by Bitwise puts Bitcoin at $200,000 by the end of 2025, and even higher if the promised Bitcoin Reserve comes to fruition.

That projection chimes with Bernstein’s target which puts BTC at $200,000 by the end of next year, citing increasing demand from EFTs and big buys from firms like MicroStrategy.

Will 2025 be a good year to invest?

As 2025 approaches, the investment landscape is characterised by optimism and caution. The U.S. stock market has experienced significant gains over the past two years, with the S&P 500 rising over 23 per cent year-to-date, buoyed by advancements in artificial intelligence and robust economic indicators.

Analysts project continued growth into 2025, with the S&P 500 expected to reach approximately 6,500, indicating a potential 7 per cent increase from its current level. This optimism is underpinned by expectations of sustained corporate earnings growth and supportive fiscal policies.

However, the investment horizon is not without challenges. The Federal Reserve’s recent indication of fewer rate cuts than previously anticipated has introduced volatility, as evidenced by the S&P 500’s 2.94 per cent decline following the announcement—the steepest drop on a Fed day since 2001.

Additionally, potential policy shifts, including the incoming administration’s trade policies, could introduce further market uncertainties.

In this environment, diversification and strategic sector allocation have taken on a new importance. Sectors such as energy, utilities, and healthcare, which traditionally exhibit resilience in volatile conditions, may offer relative stability. Conversely, sectors heavily reliant on low borrowing costs, including technology and growth stocks, could encounter increased headwinds if interest rates remain elevated.

Furthermore, the cryptocurrency market, particularly Bitcoin, is poised for significant developments. Analysts forecast Bitcoin to reach new all-time highs, potentially up to $200,000 by the end of 2025, driven by increasing institutional investment and supportive policy initiatives.

The outlook for 2025 suggests potential for continued market appreciation, investors should remain vigilant. Balancing optimism with prudence, focusing on diversified portfolios, and staying attuned to policy developments will be essential strategies in navigating the complexities of the coming year.