This article explores the potential for a bull market in 2025, analyzing factors driving economic growth, corporate earnings, and interest rates. It discusses the impact of AI, productivity gains, tariffs, and potential tax cuts. The article also considers risks and scenarios that could lead to a bear market.
Use of the terms “bull” and “bear” in financial markets can be traced back to London’s financial district in the late 19th century, used as an analogy for how each animal attacks; the bull thrusts its horns upwards, and a bear swipes its paws downwards. Others believe the terms started in the 16th century when bearskin salesmen would sell skins they had yet to receive from trappers, hoping the price from trappers would drop. We’ll leave that debate to you.
Factors driving these earnings gains include solid economic growth, massive AI investment, related increases in productivity, which boost margins, and deregulation, particularly for financial and energy companies. Tariffs will offset some of these positive earnings drivers, though to what degree is an open question.Source: LPL Research, Bloomberg, 02/06/25It’s easy to forget the U.S.
Our bear case, or worse-than-expected scenario, features escalating trade tensions, unabated deficit spending, another uptick in inflation coupled with no additional rate cuts from the Fed, excessive bullish sentiment, and elevated equity valuations.Tariffs may help reach objectives, such as raising much-needed revenue for the U.S. Treasury or encouraging stronger border enforcement by Mexico. But they hurt corporate profits by increasing import costs.
Stocks are also richly valued relative to bonds based on the equity risk premium . The ERP compares the earnings an investor gets at a given price level for the stock market with the yield offered by long-term Treasuries . These two “yields” are about even right now, meaning investors are not getting compensated for the additional risk they are taking in equities relative to high-quality fixed income.
BULL MARKET BEAR MARKET ECONOMIC GROWTH CORPORATE EARNINGS INTEREST RATES AI TARIFFS TAX CUTS
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