5 Predictions for the Stock Market in 2025 and Stocks to Watch

Almost a year ago, I made several predictions for the stock market in 2024. I anticipated that the S&P 500 would show positive returns, albeit lower than those achieved in 2023. Additionally, I thought the "Magnificent Seven" stocks would not lead the market like they did previously. While these predictions were accurate (even if some of the Magnificent Seven had noteworthy gains), my other two forecasts did not unfold as expected.

I expected a stock market surge in the fourth quarter due to interest rate cuts by the Federal Reserve. Although the Fed did reduce rates during that time, stocks did not rise as significantly as I had hoped. I also predicted that small-cap stocks would perform exceptionally well. While they did see gains in the latter half of 2024, they lost much of that progress in the last weeks of the year.

My record of predictions isn't perfect, but I am ready to share my projections for 2025, along with which stocks might thrive if they come true.

1. Rise of Artificial Intelligence Agents

The trend of artificial intelligence (AI) is expected to continue its rapid growth in 2025. Specifically, I predict that AI agents will emerge as a critical focus next year. AI agents are advanced programs that make decisions independently, revolutionizing how we work and interact with technology.

Major AI-related stocks are likely to gain from the growing implementation of AI agents. I believe Alphabet (GOOG) could stand out in this field. The company offers a range of services, including the Android operating system, Google Cloud, Google Search, Google Workspace, and Pixel smartphones, which create opportunities to apply AI agents effectively. Recently, Alphabet launched Google Agentspace utilizing its Gemini large language model to enhance corporate AI applications.

2. Persistent Inflation to Worry Investors

While inflation has decreased from its pandemic highs, I predict that it will remain high in 2025, which may lead to investor concerns. I suspect that hints from the Federal Reserve about fewer rate cuts will materialize due to ongoing inflation pressures.

As a result, I believe the S&P 500 will not see gains comparable to last year's performance. However, some companies may still thrive. I think Costco Wholesale (COST) will be among those success stories. Costco outperformed the S&P during the high-inflation phases between 2021 and 2023 and continued that trend last year. If inflation persists as I predict, consumers may gravitate toward Costco, potentially boosting its stock further.

3. Increased Focus on Value Stocks

The stock market has seen significant growth, resulting in many stocks trading at high valuations. However, I believe investors will turn their attention to value stocks sooner rather than later, making them increasingly popular in 2025.

One standout in the value stock space is BioNTech (BNTX), which currently trades at only seven times its projected earnings. The company's enterprise value of around $10.2 billion is extraordinarily low, given its recurring revenue from COVID-19 vaccine sales and its promising pipeline of future products.

4. Deregulation Benefits Financial Sector

There is a strong possibility that the federal government will ease regulations in 2025. This could have beneficial repercussions across many industries, particularly for the financial sector, which often struggles with extensive regulations.

One company poised to benefit from deregulation is Citigroup (C). The financial giant has seen its shares soar by 37% in 2024. Despite this performance, Citigroup's stock remains fairly priced, trading at about 9.6 times its forward earnings. I expect the company's upward trajectory to continue in the event of deregulation.

5. Energy Stocks Influenced by Deregulation

The energy sector is likely to undergo significant changes due to the anticipated deregulation, particularly under the incoming administration's push for increased domestic oil production. The campaign slogan of "drill, baby, drill" could lead to benefits for some energy stocks, while also presenting challenges related to lower oil prices.

One clear winner could be Enterprise Products Partners (EPD). The company operates over 50,000 miles of pipeline across the U.S. More oil and gas production will likely lead to increased flow through its systems. Interestingly, Enterprise can still thrive even if oil prices decline, which makes it appealing for income-focused investors. The stock boasts a high distribution yield of 6.63% and has consistently increased its payouts for 26 years.

predictions, stocks, market, inflation, deregulation