A leading financial expert has warned investors to prepare for a potential stock market correction in 2025. Nigel Green, CEO of the deVere Group, warned this week that a confluence of rising consumer debt, high inflation, and high interest rates points toward potential market volatility this year.

In a statement on Sunday, the finance chief said a correction was now ‘likely’ after it became clear that stubborn inflation would upend priced-in market expectations of interest rate easing. Commenting on Thursday, Mr Green said:

“In America, you are seeing the Fed saying they had inflation under control, and they said the job market was weakening. That would have meant inflation was coming down, but it turns out they are absolutely wrong.

“What we have got is a situation where inflation is increasing right now and the job market has considerably strengthened. Last week they added 100,000 jobs more than expected in the US economy.

“The economy is going fast, so why would the stock market crash? Well, the market has priced in interest rates coming down, but now that looks less likely. People are running out of money, so in other words whilst the job market is strong people have been overspending.”

The fresh warning comes on the heels of a December alert by Mr Green to investors that they should adopt a more cautious posture in 2025, drawing attention to the fact that some stocks are riding high on forecasts which saw interest rates being slashed. As Mr Green predicted those expectations now look dashed, with some analysts now saying The Fed could raise rates this year. He said:

“Consumer credit bills are higher than they have ever been and 20 per cent of people currently cannot afford to pay their credit cards off and are defaulting on their debts. We have a situation in the US where inflation is high and they cannot cut interest rates for at least six months.

“Potentially they may not even cut at all in 2025, although I am predicting one cut this year. Some analysts say the Fed could even raise interest rates this year. If they did, the stock market would correct.”

Mr Green, who heads up one of the world’s leading financial institutions, shared his view on how investors could insulate themselves from a possible looming market correction. He advised investors that AI stocks could be well-placed to weather a potential storm and that they should consider reducing their exposure to the market by investing in a money market account:

“In my opinion, there are some stocks which will continue to do well, particularly AI, the energy sector and the financial industry.

“With Trump coming in he will deregulate and reduce red tape so those companies potentially can continue to do well. Put some in a money market account, particularly when you have a situation where fixed rates are higher. Don’t forget when fixed rates are higher people choose to invest in fixed interest rather than stock.

“Think about it this way, if you could get 10 per cent in stock but you could get 6 or 7 per cent as you can with a deVere money market account, why take the risk? In other words, people choose to go with a money market account rather than invest in stock, there is less risk for slightly less return.

“Make sure you speak to a financial advisor, make sure you always diversify your money to ensure you are getting a good steady return to improve your financial future for yourself and your family.”

The stark warning comes after a December statement from The Fed, signalling there would be less interest rates in 2025 than had been anticipated. Sticky inflation and high borrowing costs have sent jitters through the markets, as the possibility of large-scale consumer defaults looms large. While there is still plenty of upside potential in 2025, investors could be well advised to prepare for a correction.

Investment Bank warns of major corrections

On Thursday Goldman Sachs said it now forecasts a 30 per cent chance that there will be major stock market corrections in 2025. Analysts at Goldman think the trouble for the markets is that perfection has been priced in – and they are now facing up to the sober reality that borrowing costs won’t fall dramatically any time soon. If analysts start ratcheting their risk factor up, there is a real chance markets could take a hit.

However, with the US economy in good shape, some analysts say even if a correction comes this year, it may only be a short-run thing. Speaking to CNBC, LPF Financial chief technical strategist Adam Turnquist explained:

“Rates are moving a little bit too much; too fast and equity markets are selling off…But the important thing that gets lost on days like today is the message of why rates are moving higher — it’s because the economy is doing better than expected.”

“Ultimately, that means the potential for better earnings, less risk of a recession, and that’s really going to dictate longer-term returns versus a sell-off in today’s market.”

However, others are more pessimistic in their analysis. Speaking in a Rosenberg Research webinar the British investor Jeremy Grantham painted an apocalyptic picture of a ‘cataclysmic decline’ which could see stocks fall as much as 50 per cent. As Business Insider reported:

“Grantham compared this point in time to the dot-com bubble when the internet created a big buzz and drew in a lot of investor cash before tech stocks crashed. These included Amazon, which lost 92 per cent of its value before coming back as a monster company. He added that artificial intelligence could be bigger and more important than the internet but that it didn’t mean there wouldn’t be big losses along the way.”

While investors will find relief in the fact Grantham’s repeated bearish warnings have not yet borne fruit, it is always prudent to consider if your portfolio is resilient enough to withstand a worst-case scenario.

There could be good news for investors in 2025

This year looks set to be volatile for the markets. Conflict in the Middle East and Europe remains unresolved, analysts are unsure how the incoming Trump government will impact the economy and high inflation and interest looks here to stay. But amid the very real warnings of a possible correction – there could be scope for investor optimism among the potential volatility.

The U.S. economy continues to demonstrate resilience, with strong job gains and consumer spending indicating robust economic activity. Goldman Sachs projects a continued U.S. economic expansion with an 80 per cent probability, anticipating the S&P 500 to rise by 5-7 per cent and achieve a total return of 7-8 per cent in 2025, driven by a forecasted 10 per cent increase in earnings per share.

But the risk of a market correction remains real. For investors, preparing for that eventuality involves strategic planning and prudent decision-making. Diversification remains a cornerstone of risk management. By spreading investments across various asset classes—such as stocks, bonds, commodities, and cash—investors can mitigate the impact of downturns in any single market segment.

Furthermore, maintaining a long-term investment perspective is crucial. While market corrections can be unsettling, history has shown that markets tend to recover over time. Staying informed about economic indicators and policy developments can help investors make informed decisions and avoid reactionary moves that may not align with their long-term financial goals.

While the prospect of a market correction in 2025 is a real one, could be plenty of opportunities along the way. Investors should consider which stocks and asset classes will be the most robust in a climate of high interest and high inflation. With potential volatility ahead, it could be prudent to take professional financial advice to ensure your portfolio is as resilient as it ought to be in the event of a market correction this year.