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As we move through 2025, the global economy and financial markets are facing a critical juncture. Jim Puplava, founder and president of Financial Sense Wealth Management, recently covered the consensus forecasts for the US stock market and economy for 2025 as well as some potential surprises and “outrageous predictions” being made. Podcast audio: Forecast 2025: Consensus, Surprises, and Outrageous Predictions

The Economic Outlook: A "Goldilocks" Economy

The consensus among Bloomberg economists and major Wall Street firms suggests that the U.S. economy will maintain steady, albeit slower, growth in 2025.

Economic Growth

In 2024, economic growth came in at 2.7%, but forecasts predict a slight slowdown to 2.1% in 2025. This is largely based on an expected deceleration in consumer spending, government spending, private investment, and a decline in trade.

Despite these headwinds, industrial production remains a bright spot, with Purchasing Manager Indexes (PMIs) signaling improvement. Industrial growth is expected to be 1.1% in 2025 and 1.7% in 2026.

"No recession is in sight, based on current forecasts. It would take an exogenous event to derail this outlook," Puplava emphasizes.

Inflation and Interest Rates

Inflation is expected to decline further, with the Consumer Price Index (CPI) projected to average 2.5% in 2025, down from 3% in 2024. Even though we’ve seen the opposite so far, interest rates are also expected to ease in 2025:

• The 10-year Treasury yield is forecasted to end the year at 4.1%, down from its current level of 4.75%.
• The federal funds rate is expected to drop to 3.75% in 2025 and 3.5% in 2026.

However, Puplava warns of a potential risk: "If long-term yields rise above 5.5% or 6%, it could spell trouble."

A Booming Stock Market—But Is It a Bubble?

Consensus Forecasts

The median forecast for the S&P 500 is 6,614, implying a 12.5% gain from its 2024 close of 5,881. Some bullish forecasts, such as those from Oppenheimer, predict the index could reach as high as 7,100, marking a potential 20% gain.

If these predictions hold, the market would record three consecutive years of 20% gains, a feat not seen since the late 1990s. However, the more “bearish” forecasts, like Cantor Fitzgerald's, suggest a more modest 2% gain, with the S&P ending the year around 6,000.

Valuations and Risks

Puplava highlights the elevated valuations in the market:

• The S&P 500's price-to-earnings (P/E) ratio stands at 27.14, while the Nasdaq's is even higher at 34.5.
• Dividend yields remain low, with the S&P yielding 1.27%, the Nasdaq at 0.76%, and the Dow at 2.18%.

"Stocks are in a bubble, carrying bubble-like valuations," Puplava notes. "Bubbles can expand longer than logic dictates, but when they burst, the consequences can be severe."

Corporate earnings are expected to be the primary driver of market gains in 2025, as the era of P/E expansion appears to be over.

The Dogs of the Dow: A High-Yield Opportunity?

The "Dogs of the Dow" strategy, focusing on the top 10 highest dividend-paying stocks in the Dow Jones Industrial Average, has historically outperformed the broader market. However, in recent years, it has lagged behind the S&P 500 and the Dow itself.

2025 Outlook for the Dogs of the Dow

The average yield for the Dogs of the Dow at the beginning of 2025 is currently 3.53%, down about a percent from the beginning of 2024. The top five dividend payers include:

1. Verizon VZ: 7.17% yield
2. Chevron CVX: 4.26% yield
3. Amgen AMGN: 3.63% yield
4. Johnson & Johnson JNJ: 3.49% yield
5. Merck MRK: 3.26% yield

Puplava believes the Dogs of the Dow could make a comeback if interest rates decline, making high-dividend stocks more attractive to income-focused investors. "Given the uncertainties in 2025, safer, high-yield investments may draw more interest," he explains.

Contrarian Predictions: What Could Go Wrong?

While the consensus outlook paints a relatively optimistic picture, several contrarian forecasts highlight potential risks and surprises.

Saxo Bank’s Outrageous Predictions

Saxo Bank’s annual list of “outrageous predictions” for 2025 includes provocative scenarios designed to challenge conventional thinking. These are out-of-consensus and lower probability “tail risk events” but would have a large impact if they did occur. Some of the most notable include:

1. Trump 2.0 "Blows Up" the US Dollar: A second Trump presidency could trigger a devaluation of the U.S. dollar by 20%, pushing gold to $4,000–$5,000 and sending crypto markets soaring to $10 trillion.
2. Nvidia NVDA Becomes the World’s Most Valuable Company: Nvidia’s dominance in AI could catapult its valuation to twice that of Apple, driven by groundbreaking advancements in AI computing.
3. OPEC Becomes Irrelevant: Declining oil demand due to the electric vehicle boom could render OPEC obsolete, causing oil prices to plummet.

Byron Wien’s 10 Surprises

Hudson Value Partners, carrying on Byron Wien’s tradition, offers more moderate surprises, such as:

• Ukraine Conflict Ends: A demilitarized zone could be established, bringing an end to the costly war.
• Streaming Wars Consolidate: Netflix and YouTube emerge as dominant players, while smaller platforms merge to survive.
• AI Faces Growing Pains: The absence of a “killer app” and supply chain issues could temper enthusiasm for AI stocks.

Doug Kass’s 15 Surprises

Doug Kass takes a contrarian view, predicting significant market volatility and geopolitical shifts:

• Market Decline: The S&P 500 could drop by 15%, with the Nasdaq falling over 20%.
• Climate Catastrophe: A 500-year flooding event could wreak havoc on the U.S. economy.
• Tech Regulation: The U.S. government intensifies antitrust actions against Big Tech, disrupting the industry.

Volatility Ahead: Puplava’s Final Thoughts

Puplava warns that 2025 could be marked by heightened volatility, driven by a combination of economic uncertainty, elevated market valuations, and geopolitical risks. "This year will likely see a correction and eventually a peak in the markets," he predicts.

Liquidity, a key driver of market performance, is beginning to dry up. Michael Howell, a guest on Financial Sense Newshour, emphasizes the critical role of liquidity in sustaining market gains (see Global Liquidity vs. Debt Maturity Wall: What Investors Need to Know About 2025). As liquidity tightens, the risk of a market downturn increases.

Conclusion: A Year of Opportunities and Risks

The consensus for 2025 suggests a steady economy, declining inflation, and a strong stock market. However, elevated valuations and potential surprises could disrupt this outlook. As Jim Puplava advises, "Investors should prepare for volatility, focus on quality, and keep an eye on liquidity trends."

Whether it’s a continual rise in long-term rates, a contrarian prediction coming true, or unexpected twists in the global economy, 2025 promises to be a year of both challenges and opportunities. Stay informed and vigilant as the year unfolds.

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