Markets May Face Early 2025 Pullback, but Long-Term Rally Expected, Says Yardeni

Financial markets are likely to experience increased volatility in early 2025, according to Yardeni Research, as rising investor complacency and surging bullish sentiment present potential risks under President Trump’s administration.

Early 2025 Pullback Possible Amid Investor Optimism

Yardeni analysts warn that the Nasdaq’s approach to the 20,000 milestone could lead to a significant market pullback in early 2025. Elevated optimism among investors, coupled with deferred profit-taking to minimise immediate tax liabilities, might trigger portfolio rebalancing and short-term turbulence.

Long-Term Market Rally Anticipated for 2025

Despite potential early-year challenges, Yardeni remains optimistic about the overall market trajectory in 2025. The S&P 500 is projected to expand beyond its reliance on the "Magnificent-7" stocks, including Tesla, which have driven recent gains. The index could climb to 22,000 by late 2025, supported by economic resilience and improved corporate earnings, according to Yardeni’s forecast.

Fed Policy and Fiscal Initiatives Boost Confidence

Market stability may also be bolstered by President Trump’s decision to retain Fed Chair Jerome Powell. Powell reiterated the U.S. economy’s strength and emphasised that there is no immediate need to cut interest rates. Meanwhile, fiscal policy discussions led by Elon Musk and Vivek Ramaswamy, focused on deficit reduction, could yield long-term economic benefits, analysts noted.

Geopolitical Shifts Provide Additional Support

On the global stage, the overthrow of Bashar al-Assad in Syria represents a notable geopolitical development, potentially reducing uncertainties in the Middle East. Such shifts could contribute to a more favorable environment for global markets, Yardeni added.

A Bullish Outlook with Cautious Optimism

Yardeni Research concludes that while the first half of 2025 may bring market turbulence, long-term trends indicate a strong setup for continued growth. The firm maintains its bullish outlook but advises investors to remain vigilant against complacency as markets evolve.

(Sources: investing.com, reuters.com)