Global stock markets are tipped to keep rising in 2025, led by more gains among US shares, despite anxiety about inflation and fears that Donald Trump could spark a new trade war.
Wall Street analysts are forecasting the S&P 500 will rise by roughly 9% in 2025, taking the index of US companies up to about 6,500 points by the end of the year, according to Bloomberg datar.
That would be less impressive than this year’s rally, in which the S&P 500 jumped by 25%, to 5,970 points at Wall Street’s close on Friday.
Deutsche Bank’s chief global strategist, Binky Chadha, has a bullish 2025 year-end S&P 500 target of 7,000 points, while Goldman Sachs predicts it will be 6,500 points.
UBS has it slightly lower, at 6,400 points, and predicts returns will be “backloaded”, with mild losses across equities expected in the first half of 2025. But once earnings estimates fall to more realistic levels, the second half of next year should be better, it predicts.
Justin White, a portfolio manager at the US investment firm T Rowe Price, says there is an undertone of nagging uncertainty, even though the markets quickly recovered from their brief slump in August. White anticipates “a slow grind higher on the US equity market in the near term”.
Stocks are expected to rally in London next year, but – as in 2024 – not as quickly as on Wall Street. Goldman Sachs predict the FTSE 100 will end 2025 at 8,500 points, which would be a gain of almost 400 points, or 5%, on its current levels and slightly above the record high of 8,474 points set in May.
The brokerage firm AJ Bell has a higher target of 9,000 points by the end of 2025, arguing that “prevailing gloom” means UK equities look cheap on an earnings and yield basis.
“Total returns from the UK stock market in 2024 handily beat cash, bonds and inflation, but the poor comparisons with the USA remain the stick with which the FTSE 100 is constantly beaten,” said Russ Mould, AJ Bell’s investment director.
The rest of Europe’s markets are expected to lag behind, with Goldman Sachs predicting “positive but low returns” for the pan-European STOXX 600 index.
One fear is that there may be less opportunity for interest rates cuts in 2025 than hoped, especially if Trump’s return to the White Houses leads to new trade conflict. This is because tariffs on imports would be inflationary.
A global financial market survey conducted by Deutsche Bank this month found that a trade war was seen as the biggest risk to market stability in 2025, followed by a tech stock plunge and fears that inflation could be sticky.
On interest rates, economists are predicting a divergence in policy between the US Federal Reserve and the European Central Bank in 2025.
The Fed startled investors at its final meeting of 2024, in December, by predicting it would make just two quarter-point cuts next year, down from three previously, prompting investors to rethink the outlook for US interest rates in 2025.
“We now look for 25bps [basis points] cuts in June and September next year, rather than our previous expectation of one cut in each quarter for a total of 100bps,” said Mark Haefele, the chief investment officer at UBS Global Wealth Management.
Goldman Sachs, though, still expect three quarter-point cuts from the Fed next year.
Fears of rising inflation in 2025 have pushed up the yield, or interest rate, on US government bonds in recent weeks.
“Expectations that the Federal Reserve will have little room to trim rates in 2025 amid a strong economy, sticky inflation and price-boosting polices by Trump have stymied the Fed’s hope to slash borrowing costs from decades highs” said Raffi Boyadjian, the lead market analyst at the brokerage firm Trading Point.
The ECB is expected to cut more rapidly than the Fed. ABN Amro predicts the eurozone deposit rate will be cut to 1% by early 2026, from 3% at present, pushing the euro down to parity against the dollar.
Analysts at ING say the Trump administration’s plans for looser fiscal and tighter immigration policy, when combined with relatively higher US rates and protectionism, all make a strong case for a dollar rally. In contrast, they predict the euro will weaken and that Scandinavian currencies will also underperform owing to exposure to a weak European economy.
The latest money market forecasts suggests the Bank of England will only manage two quarter-point cuts to UK rates in 2025, although it could move faster if the economy deteriorates.
Among commodities, JP Morgan predicts oil prices will fall in 2025, compared with 2024, as slowing demand leads to larger surpluses. It forecasts Brent crude will average $73 (£58) a barrel next year, down from about $80 this year. This is on the assumption that the Opec+ group maintains its current production levels
Iron ore prices are expected to drop, with Goldman Sachs forecasting a 10% fall from $105 a tonne today to an average of $95 in 2025.
Goldman also predicts the coal market will cool in 2025, with decreasing import demand and continuing decarbonisation efforts leading to lower prices and trading volumes.
But gold should still be a winner among the commodities, predicts UBS, due to strong demand from both central banks and retail investors.
