Stock market outlook for 2025: 4 experts weigh in

The year ahead promises to be interesting for investors. In the U.S., a business-friendly administration, lower interest rates, and possible corporate tax cuts may support earnings growth. But, high valuations have many investors on edge. Let’s explore what experts say about these competing dynamics and their impact on different areas of the stock market in 2025.

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The S&P 500 (^GSPC) should produce modest returns in 2025, with volatility along the way. Marta Norton, chief investment strategist at retirement plan provider Empower, expects large caps will benefit from improving macroeconomic conditions and the ongoing adoption of artificial intelligence.

Norton cites valuation as an “important countervailing force.” Valuation in this context refers to stock prices relative to earnings and other business fundamentals. When valuations are high, investors are paying more for earnings — usually with the expectation of strong growth. If the growth disappoints, volatility can result.

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Small- and mid-cap stocks may outperform the S&P 500 in 2025. The driving force will be the outsized benefits smaller companies should see from lower interest rates and possible corporate tax reductions.

According to David Rosenstrock, director at Wharton Wealth Planning, small and mid-caps are more likely to rely heavily on variable-rate debt, while larger companies favor fixed-rate facilities. Variable-rate borrowers benefit immediately from rate reductions because their obligations get repriced quickly. Existing fixed-rate debt does not adjust to lower interest rates until refinanced.

Tax cuts can favor small and mid-caps because most of their revenues are usually earned in the U.S. Rosenstrock explains, “Reducing the corporate tax rate may provide greater relief for these asset classes than for large caps, whose geographic revenue sources are more diversified.”

Growth stocks may underperform in 2025. Crit Thomas, global market strategist at…

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