By Nermeen Nabil Khear 
Market predictions this year serve little to no good, according to Bloomberg analysts. Several projections have been centered on the growth of artificial intelligence (AI), which is expected to boost financial markets across every industry. But as history may have it, even good gambles can end in unrecoverable losses. How much more bad ones?
During the 1970s, Wall Street investors admitted to favoring the top 10 to 15 stocks driving the US market, which accounted for 40% of market capitalization at the time. They completely failed to consider external factors like geopolitical tensions and macroeconomic policies, as chronicled in George Goodman’s Supermoney.
Many “go-go” US equities of the 1960s crashed, leaving fund managers with nothing, not even scraps. “We didn’t pay attention,” said a speaker at a financial conference.
We are now in a parallel situation; the top 10 US stocks account for 30% of the market. Like clockwork, forecasters are calling 2025 the year of “AI and tech innovation.” Suppose 1970 happens all over again, are the “financial experts” really to blame? Or is 2025 a year of common sense?
Lessons from the past: Eyes open to the bigger picture
In 2024, Wall Street had nothing short of a remarkable performance, delivering the strongest back-to-back returns since the prosperous Clinton-era markets of the late 1990s. However, some market analysts are concerned that the stock market’s rise is “too good to be true.”
Critics warn that certain stock valuations have become detached from economic fundamentals. Much like the 1970s, they fear a potentially severe market correction that could ripple through the broader economy is looming.
“I’m very concerned because the stock market is pricing in nothing but blue skies and sunshine forever,” Mark Zandi, chief economist at Moody’s Analytics, told CNN.
Zandi further cautioned that the current market environment is “very richly valued, bordering on frothy.” The seemingly unshakeable confidence in the market’s trajectory could face a reckoning, and if investors are not wary, they could be in for a rude awakening.
Financial forecasters often sidestep accountability, says Elliott Appel, founder of Kindness Financial Planning. He likens their predictions to gamblers chasing a streak, noting the near impossibility of finding historical records of accurate stock market forecasts.
“If stock market forecasts were useful and accurate, you would have an easy time finding past predictions,” Appel reckoned. “If you don’t believe me, try searching for historical stock market predictions from any company or individual. They are nearly impossible to find.”
Verdad Capital’s Portfolio Manager Dan Rasmussen seconds the sentiment around market predictions. In a recent podcast, he called long-term projections “pure coin flips.”
“If you could forecast immaculately, it still wouldn’t help you much. Even with full retrospective prescience, you can’t explain most of the volatility in markets. Knowing the numbers can’t tell you how people will react to them.” Rasmussen reiterated.
The AI cycle: Opportunity or mirage?
AI has hijacked investment headlines and portfolios. However, Rasmussen argues that not all of them will yield returns in the long run. He pointed out the difficulty of distinguishing between firms creating value and those “incinerating capital.”
Rasmussen favors fast-growing Eastern European stocks, particularly Polish small caps, which could benefit from a ceasefire in the Russia-Ukraine conflict. These thinly traded equities contrast sharply with the heavily scrutinized and often overpriced American AI stocks.
According to CNN, equities were driven by the surge in artificial intelligence and the dominance of the Magnificent Seven tech stocks. They soared by 29% in 2024, following an impressive 43% rise the previous year. The S&P 500 added a staggering $10 trillion in market value during the same period, according to S&P Dow Jones Indices.
The markets have experienced pullbacks in recent weeks, and Zandi fears a downturn exceeding 20% is imminent. He admitted to not feeling this uneasy about overvalued markets since the late 1990s, during the height of the dot-com bubble.
“The run-up in stock values has played a critical role in the economy’s success. It’s driven a lot of spending. The wealth effects are quite potent,” the chief economist at Moody’s Analytics explained. “But if the stock market went down and stayed down for a lengthy period of time, that would knock the wind out of high-income spending. And that’s a threat to the economy.”
US policy uncertainty will affect markets
Meanwhile, a JP Morgan research projects a challenging economic landscape for 2025, characterized by elevated inflation and diverging monetary policies. Global GDP is expected to rise by 2.5%, while core CPI inflation could remain near 3%, pinning down central banks’ ability to ease rates.
Bruce Kasman, JP Morgan’s chief economist, predicts a “high-for-long” rate environment, challenging consensus views of inflation easing to 2%. Goods price disinflation has ended, he argues, and service price inflation is unlikely to return to pre-pandemic levels.
Western Europe could emerge as a weak link, with euro area policy rates forecasted to drop below 2%. In contrast, the US Federal Reserve and most emerging market central banks are expected to take minimal action, sustaining higher rates.
Kasman warns that extreme trade or immigration policies could disrupt global supply chains and sentiment. A more aggressive inward turn by the US, including large-scale deportations or sharply curtailed trade, could trigger a significant global economic shock.
JP Morgan analysts believe retaliatory measures and a slump in investor confidence would amplify the economic strain.
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This articles is written by : Nermeen Nabil Khear Abdelmalak
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