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The only thing we can say with certainty about the stock market is that it will keep doing what it does best — zigging and zagging, dishing out surprises, and keeping us investors on the edge of our seats!
That said, making predictions is always fun. So, while knowing each one could turn out totally wrong, here are my top two market predictions for 2025.
Tesla stock will drop by at least 40%
Tesla (NASDAQ: TSLA) had a barnstorming 2024, with its share price surging 62.5% to reach $403.
According to Fortune, this helped CEO Elon Musk end the year over $200bn richer on paper!
Admittedly, some of this gain came from the soaring valuations of his other firms, including SpaceX. But Tesla was the main driver, with the electric vehicle (EV) pioneer’s market cap now firmly back above $1trn.
Clearly, Musk’s backing of Donald Trump and his subsequent election victory has been key. The market is assuming that the incoming US government will streamline regulations on autonomous vehicles (AVs), which could pave the way for a faster rollout of Tesla’s robotaxis.
Well before these hit the road though, a Trump administration is also likely get rid of the $7,500 in tax credits that US consumers receive when they buy an eligible EV. And this will surely hurt demand for EVs, which still make up around 79% of the firm’s total revenue.
Meanwhile, the stock’s valuation is detached from reality, trading at a forward price-to-earnings (P/E) ratio of 117. This sky-high multiple doesn’t reflect the challenges Tesla faces, including weak consumer spending, the potential elimination of EV subsidies, and rising competition from cheaper hybrid vehicles.
Inviting a load of egg on my face then, I predict Tesla stock drops 40% this year. While that sounds dramatic, it would only bring it back to $242, where it was just before November’s election.
The FTSE 100 rose 5.7% last year, its fourth consecutive year of gains. I’m going to stick my neck out and say it makes it five in a row in 2025.
I’m not alone. AJ Bell Investment Director Russ Mould reckons the index could hit 9,000 points by year-end, which would be a rise of about 10% from today’s level. I’m not going that far, but I reckon it’ll end 2025 higher than it started it.
What makes me think this? Well, Trump’s proposed tariffs could cause inflation to increase by 2.5% in the two years following implementation, according to Bloomberg Economics.
Of course, tariffs aren’t guaranteed. But investors might look towards this possibility and start getting a little nervous. If so, I’d expect defensive sectors and stocks to do relatively well. The FTSE 100 includes defensive giants like AstraZeneca and GSK in healthcare, and Unilever and British American Tobacco in consumer staples.
Furthermore, the blue-chip index looks less risky, trading at a low P/E multiple of 15.5 and offering a 3.6% yield. In contrast, the S&P 500 is eye-wateringly expensive right now.
Finally, with UK politics now more stable, London might seem a more attractive investment destination than previous years. Elsewhere, the political outlook is more uncertain, especially in France and Germany.
Barring an economic crisis, history shows that the FTSE 100 tends to rise the year after an election.
