Image source: Getty Images
The only thing we can say with certainty about the stock market is that it will continue to do what it does best: zigzag, deliver surprises, and keep us investors on the edge of our seats.
That being said, making predictions is always fun. So, while I know each one could turn out to be totally wrong, here are my top two market predictions for 2025.
Tesla shares will fall at least 40%
tesla (NASDAQ: TSLA) had a spectacular 2024, with its share price rising 62.5% to $403.
According to Fortune, this helped CEO Elon Musk end the year more than $200 billion richer on paper.
Admittedly, some of this gain came from the rising valuations of his other companies, including SpaceX. But Tesla was the main driver, with the electric vehicle (EV) pioneer's market capitalization now firmly above $1 trillion.
Clearly, Musk's support for Donald Trump and his subsequent electoral victory has been key. The market assumes that the incoming US government will simplify regulations on autonomous vehicles (AVs), which could pave the way for faster deployment of Tesla robotaxis.
However, long before these hit the road, the Trump administration will also likely get rid of the $7,500 in tax credits that American consumers receive when they purchase an eligible electric vehicle. And this will surely affect the demand for electric vehicles, which still account for around 79% of the company's total revenue.
Meanwhile, the stock's valuation is far from reality, trading at a forward price-to-earnings (P/E) ratio of 117. This sky-high multiple does not reflect the challenges Tesla faces, including weak consumer spending, possible removal of subsidies for electric vehicles and increasing competition from cheaper hybrid vehicles.
So, with a lot of egg on my face, I predict that Tesla stock will fall 40% this year. While that sounds dramatic, it would only take it back to $242, where it was just before the November election.
He FTSE 100 it rose 5.7% last year, its fourth consecutive year of gains. I'm going to go out on a limb and say it will be five in a row in 2025.
I'm not alone. AJ Bell Chief Investment Officer Russ Mold estimates that the index could reach 9,000 points by the end of the year, which would be an increase of around 10% from the current level. I'm not going to go that far, but I estimate that you will end 2025 at a higher level than you started.
What makes me think this? Well, Trump's proposed tariffs could cause inflation to rise by 2.5% in the two years after they are implemented, according to Bloomberg Economics.
Of course, tariffs are not guaranteed. But investors might look at this possibility and start to get a little nervous. If so, I would expect defensive sectors and stocks to perform relatively well. The FTSE 100 includes defensive giants such as AstraZeneca and GSK in health, and Unilever and British American Tobacco in basic consumer products.
Additionally, the blue-chip index appears less risky, trading at a low P/E multiple of 15.5 and offering a yield of 3.6%. In contrast, the S&P 500 It's incredibly expensive right now.
Finally, with British politics now more stable, London could appear a more attractive investment destination than in previous years. Elsewhere, the political landscape is more uncertain, especially in France and Germany.
Barring an economic crisis, history shows that the FTSE 100 tends to rise in the year after an election.
