As we get ready to ring in 2025, many of us are wondering, "What will the new year bring for the stock market?" The first thing that I've been thinking about is that the S&P 500 was up over 20% in both 2023 and 2024. There's two ways to view this. The first would be to look at a year like 1928 and note that while the market was up 43.8% that year, it was followed by a major market crash in 1929. The opposing view would be to look at the 1990s and to realize the years from 1995 to 1999 were one of the strongest periods in history. So which view is correct?
A Sharp Correction Is Likely
One of the other things I've been thinking about is that the S&P 500 has not had a 15% or greater correction in quite some time. As we can see in the chart below, recent pullbacks have been contained to around 10-11%. Historically, the market is due for a decline of over 15%. Even if we look to the 1990s as an example, we can not that the S&P 500 fell over 19% from July 17, 1998 to August 31, 1998. Even though the S&P 500 was up over 25% that year, there was a large decline that did not make things easy.
Climax Runs
I'm also watching the potential for a blow-off move / climax run in leaders such as NVDA, ALAB, APP, PLTR, and RDDT. These stocks have been incredibly strong and these types of moves sometimes end in a blaze of glory as a frenzy of buying takes over. I could very well see that happening in these names.
Breadth
While 2024 was a great year for the S&P 500 and certain names, many stocks struggled. A quick look at the advance-decline line shows how poor participation has been. This type of divergence can't last forever. Remember, "when they raid the brothel, they take the piano player too." Even the most popular leading stocks will be taken down when the market corrects. And as the market breadth gets smaller and smaller, we get closer to that happening.
Bitcoin Will Surpass $200K in 2025
Just about this time last year, I declared 2024 as "The Year Of Bitcoin." 2024 was indeed a fantastic year for Bitcoin, but what about 2025? I still believe there is "juice left in the lemon," and Bitcoin will see much prices in 2025. If we play out like we have in past cycles, Bitcoin will surpass $200K at some point in 2025. However, parabolic moves in Bitcoin in 2025 will likely lead to a multi-year top and a fierce bear market in 2026. This is how prior cycles played out, and there's a very good change that the same scenario may happen again.
Final Thoughts
While I may have laid out some things I'm looking for in 2025, I am by no means attached to any of this. The market does what it wants, and I've learned to listen to the story that is being told. I'll quickly abandon all of my views if the market tells me I was wrong. As Jesse Livermore remarked, "Markets are never wrong, opinions often are." If you want to take any thing from this post into 2025, let it be that.
Risk right. Sit tight.
Full Disclosure: I currently own RDDT, SPY, and ALAB.
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