2025 Stock Market Outlook: What You Need To Know (+FTSE 100 & 250)
2024 was a strong year, so we’re cautiously optimistic heading into 2025. While no one can predict the future, experts expect some key trends that could shape the market this year.
Whether you’re new to investing with NuWealth, or just looking for some insight, here’s a breakdown of what to watch for.
1. Strong earnings growth could continue
The main driver of stock returns in 2025 is expected to be corporate earnings, or how much money companies make. After a record-breaking 2024, analysts predict that earnings will continue to grow, just at a slower pace.
- The biggest tech companies like the Magnificent 7, especially in artificial intelligence (AI), have led the charge. While they’re still expected to do well, growth may not be as rapid as it was in the past two years (Investopedia).
- Smaller companies outside the tech sector could see more growth in 2025. This could be an opportunity for investors looking to diversify (Morningstar). This could be due to smaller companies getting more into the action with AI.
2. Artificial Intelligence: A big player (again)
AI has been all the rage for the past couple of years, and it’s not going away anytime soon. In 2025, experts expect AI to go through a few phases:
- Phase 1 focuses on the companies that make AI chips (like Nvidia).
- Phase 2 expands to include the companies building AI infrastructure (data centres etc.).
- Phase 3 is expected to see more focus on companies making money from AI, like software companies (like Nvidia and the newest Chinese competitor Deepseek shaking up the industry) (Investopedia).
If you’re interested in tech stocks, this could be a good area to watch. But remember, not every company in AI will succeed, so choose wisely.
3. Smaller stocks could shine
While large-cap stocks (like big tech companies such as Meta and Nvidia) continue to do well, smaller companies could start to catch up in 2025.
- Small and mid-sized companies often do well when interest rates fall, which analysts expect to happen this year (Investopedia).
- These companies also tend to be less affected by global issues, like international trade tensions (Investopedia).
If you’re new to investing, consider adding some small-cap stocks to your portfolio to help spread out your risk.You’ll find plenty to choose from in the NuWealth app, and can buy them as Fractional Shares.
4. Expect some volatility
While the stock market had a smooth ride in 2024, 2025 could be a bumpier journey.
- The market may experience some pullbacks, or drops, throughout the year. A 5% dip here or a 10% dip there is not uncommon (Morningstar). You should plan for the long-term.
- This doesn’t mean the market is in trouble—it’s simply part of how markets work. These dips could even present buying opportunities for long-term investors (Morningstar).
It’s important to stay calm during these moments and remember that stock prices fluctuate regularly.
5. Uncertainty in Washington
With a new presidential administration in 2025, there’s uncertainty around the policies that could affect the economy. This could add some unpredictability to the markets.
- President Trump’s policies, including tax changes and tariffs, could impact inflation and corporate profits (Morningstar).
- Analysts are still uncertain about how these policies will play out, but they could influence market performance (Morningstar).
As an investor, it's wise to stay informed and prepared for any surprises.
6. Interest rates: Less drama, but still important
The Federal Reserve's interest rate policy could also have an impact on the market in 2025. In 2024, there was a lot of uncertainty about whether rates would go up or down. The UK base rate had two cuts last year in August and November, there are plans for more. Experts have a clearer picture for the year ahead:
- The Fed is expected to cut interest rates in 2025, but not as aggressively as in the past (Morningstar).
- If rates stay steady, it could provide opportunities in both the stock and bond markets (Morningstar).
- The UK base rate currently sits at 4.5% after an interest-rate cut today on Feb. 6.
Keeping an eye on interest rate news can help you make informed decisions.
What about the UK?
Last year, the FTSE 100 delivered returns of 7.1%, supported by sectors like finance, aerospace and defence. The FTSE 250 lagged at only 5.9% due to limited international reach. (The Motley Fool)Experts disagree, but if you’re asking what this means for growth in 2025, projections suggest that the UK could be the world’s third fastest-growing economy in 2025. (The Motley Fool) Check out The British Bulldog ETF for some of our picks for British brands to watch in 2025.
Final thoughts
While 2025 might not see the same huge stock market gains as 2024, the outlook is still positive.Earnings growth, opportunities in AI, and potential strength in smaller stocks could offer plenty of chances for investors. However, with some volatility expected, it’s important to stay prepared for ups and downs.Capital at risk. Remember that the value of investments can change, and you could lose money as well as make it. Past performance is not an indicator of future gains. This isn’t personal advice or a recommendation to buy. As always, do your own research.
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