Investment Research: 2025 Outlook, Unveiled

LPL Research has launched their 2025 market outlook report. Tap into their insights and guidance on what 2025 may hold.

Last Edited by: LPL Financial

Last Updated: January 16, 2025

aerial view, man walking through orange gold couch section

Giving credence to the role that industry-leading investment research plays in the lives of financial advisors and the clients they serve, 2025 Outlook: Pragmatic Optimism thoroughly recaps the economy and markets in 2024, plus provides LPL Research’s detailed analyses, insights, and recommendations for 2025. From how quickly short-term interest rates may decline and why the most attractive bond opportunities may be in the 5-year range to where the stock market, commodities, and currencies may be headed, the 2025 Outlook is designed to help financial professionals position clients for success.

As LPL Research looks to 2025, we’re cautiously optimistic. We’re cautious because no market environment is ever permanent, yet optimistic since constructive long-term technology trends are in place. Plus, potential tax policy and deregulation efforts in 2025 could provide some tailwinds. While growth equity returns are not expected to be as robust in 2025, the investment environment should prove to be favorable for investors. Here are some of the reasons why.

Economy: Consumer Slowing Could Be Offset by Policy Boosts

From aggressive interest rate hikes a few years ago to combat inflation to rate cuts in Q3 of 2024 that ended one of the longest pauses in history, the economy has experienced significant shifts in a relatively short time frame. While consumer spending should begin to moderate from its prior break-neck speed, pent-up business spending (now that the election is over), favorable tax policy, and likely deregulation could help offset any softening from the consumer. Be on the lookout for upticks in inflation, especially as new policies are digested, and a slower pace of Federal Reserve (Fed) interest rate cuts than expected. The labor market, which has shown signs of cooling, remains key to how the economy ultimately lands. 

2025 Quarterly and Annual Forecasts1

Key U.S. variables

real GDP (Q/Q annualized), Fed Dunds (upperbound) chart in outlook advisor article

"Potential tax policy and deregulation efforts in 2025 could provide some tailwinds."

Stock Market: A More Measured Approach

It was another strong and impressive year for stocks. The market was driven higher by unwavering trends in technology, an enduring economy with moderating inflation, the delivery of Fed rate cuts, and the prospect of investor-friendly policies from the incoming administration. Should it all persist, our fair value target range for 2025 is 6,275 – 6,375. Factors that will help dictate 2025 stock market performance include:

  • Avoiding recession. The stock market has historically delivered single-digit returns in the 12 months following an initial rate cut from the Fed. When recession has been avoided, the median gain has been closer to 11%.

Stocks Usually Go Higher After Fed Rate Cuts Begin 072

When they don't, as in ’81, ’01, and ’07, recessions are usually to blame

chart showing median gain closer to 11%, when recession has been avoided
  • Upside potential. This could come from lower rates, productivity gains, and confirmation of market-friendly policies by the new administration.
  • Downside risks. Including a much slower-than-expected economy, volatile interest rate policy, resurgent inflation, and more.

No matter what, don’t expect a one-way street higher. Even in non-recessionary periods, it’s commonplace for equity bull markets to undergo 10% corrections along the way. Be prepared for bouts of volatility and favor buying equities on market pullbacks. We expect equity returns to indeed be favorable in 2025, but not as robust as in 2024.

Bonds: Higher for Longer Continues?

The bond market remains in flux after another volatile year. But as things calm, there should be opportunities in fixed income. Key considerations include:

  • Range-bound yield environment. Ten-year Treasury yields should stay in the 3.75% to 4.25% range. The risks for yields are roughly equal, with potential upside pressures from fiscal deficits and Treasury supply, and downside risks from a Fed rate-cutting cycle that's more aggressive than anticipated.
  • An income-centric approach is favored. Given the expected higher for longer and range-bound interest rate environment, a focus on income generation is advised for bond investors.
  • Balance between yield and risk. Considering the uncertainty surrounding future interest rate movements, now is not the right time to have above-benchmark exposure to bonds with longer maturities and a higher degree of sensitivity to interest rates. Intermediate-term maturities of five years or less are favored in the current environment and look the most attractive in terms of generating optimal yield and managing risk.

Don't Miss the Full Report

This is just a snapshot of the market analyses and forecasts from 2025 Outlook: Pragmatic Optimism. The comprehensive report features so much more including insights and guidance on currencies and alternative investments — as well as LPL Research’s stock market sector recommendations.

There’s a lot to take in, but then with over 400 years of combined investment experience, LPL Research has a lot to offer. As one of the largest in research teams in the country, it’s all designed to deliver first-rate investment research that helps advisors best meet the needs of their clients with efficiency and ease. 


1. Source: LPL Research. The economic forecasts in this material may not develop as predicted. Annual GDP figures are Y/Y. * Forecast as of November 25, 2024 ^ End of period

2. Source: LPL Research, Bloomberg 11/12/24. Disclosures: Past performance is no guarantee of future results. All indexes are unmanaged and can’t be invested in directly.

Disclosures

For Financial Professional Use Only

All data provided by Factset or Bloomberg

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