Where are world stocks heading in 2025? From Dubai’s towers to Wall Street’s old exchange, an entire industry tries divining answers. But in my more than half a century managing money, I have learnt a basic central truth: forecasting is always about identifying something key that others miss or cannot fathom.
After much deliberation, it leads me to this conclusion: World markets are set to boom yet again in 2025, led by, surprisingly, Europe. Here is how, why – and what drives that.
Markets are amazingly efficient – pre-pricing widely known information and views almost instantly. Stocks look forward, weighing the likely effects of events and trends on corporate profits over the following approximately three to 30 months. A single price – more accurate than anyone could conjure alone – results.
So, forecasting requires seeing things markets and the crowd have not weighed yet, reflecting a spread between expectations and future realities: surprises.
Most forecasters examine recent trends, extrapolating them forward. Or forecast the reverse, self-congratulating their “contrarian” views. That is all too simple.
You must weigh the spectrum of possible outcomes. Seek what others miss, then assign probabilities. If one scenario dominates, it is the forecast. That brings us to 2025.
In December, I envisioned three potential outcomes with similar likelihoods. A haze clouded them. Those three were: a minor decline, a small single-digit positive year, or another big year like 2023 and 2024. But clarity came when I could measure European sentiment – making the big year most likely with stocks soaring again.
Why? First, big gains would shock most investors. America’s S&P 500 has not logged three straight 20 per cent-plus years since the late 1990s. Of 59 professional forecasters’ 2025 US market outlooks, only two top 20 per cent – one was a recent upward revision. Surprise power makes big returns likelier.
Also, in the last 100 years, US stocks rose in 60 per cent of presidential inaugural years, like 2025. When up, inaugural years are usually huge. With business fundamentals healthy, earnings will climb. High correlations and America’s huge footprint push this positivity globally.
But the biggest swing factor is sentiment. Since US President Donald Trump won November’s vote, US investors have grown more optimistic as allegedly “pro-business” Republicans took the White House and Congress. But Europeans could not be much more pessimistic – excessively so. They are on average vastly more depressed than Americans are optimistic.
Hence, even moderate non-US gross domestic product growth, particularly European, would bring huge positive surprise. They are just more sensitive.
Decades ago, behaviouralists proved American investors hate losses two-and-a-half times as much as they enjoy equivalent gains. In related work with my then research partner Meir Statman, I learnt German and British investors hate losses more sharply – perhaps four-to-one and six-to-one. Europeans are more risk-averse than Americans. Hence, many Europeans skitter readily.
Today, Trump Terror pervades Europeans. His trade policy has them tariff-ied – see Davos with questions, or any European finance minister.
Beyond US trade policy, local political chaos and faltering German and French growth compound Europe’s dourness. Fear of the rise of fringe parties has many fretting anti-EU movements. This pessimism extends the “Wall of Worry” that bull markets legendarily love to climb. It facilitates relief, rendering positive surprise.
Take tariffs. They may never happen. Remember threats to tax EU auto exports in Mr Trump’s first term? Like many others, they were bargaining chips aimed at inking deals. Even if tariffs come, only 16 per cent of EU goods exports go to America.
Most service industries, which dominate developed economies including the EU, would see only minor effects. If tariffs are not universal, Mr Trump’s first-term volleys prove they are easily dodged via brokering through another country, with abundant room for relief.
Europe sees itself as a no-growth quagmire, dogged by “sick man” Germany, so even minor growth will positively surprise
Economically, Europe sees itself as a no-growth quagmire, dogged by “sick man” Germany, so even minor growth will positively surprise – like in 2024.
Political uncertainty is high ahead of Germany’s vote and with France’s government teetering. Anticipate elections and horse trading delivering more gridlock – particularly as fringe parties do well, creating cumbersome coalitions – bullish!
Inherently tied to European leadership, value stocks (those more economically sensitive and cheaper by valuation metrics), should outshine growth – for the first sustained time in years.
Why “inherently”? America and growth stocks are intertwined. Growth-heavy tech and communication services sectors total more than 40 per cent of the S&P 500 – almost none of Europe.
Hence, when growth stocks trail, as evidenced by the Nasdaq lagging the S&P 500, US stocks tend to lag value-heavy Europe.
Shhh! That is happening now. This year to January 29, MSCI’s Europe Index, up 6.1 per cent, leads the S&P 500’s 3.1 per cent, which leads the Nasdaq’s 1.6 per cent (all in US dollars). And few see it – giving that rally staying power.
Morbid Europe outperforming exceptional America in a booming year? That would shock nearly everyone. But you.
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Flight connections to Ulaanbaatar are available through a variety of hubs, including Seoul and Beijing, with airlines including Mongolian Airlines and Korean Air. While some nationalities, such as Americans, don’t need a tourist visa for Mongolia, others, including UAE citizens, can obtain a visa on arrival, while others including UK citizens, need to obtain a visa in advance. Contact the Mongolian Embassy in the UAE for more information.
Nomadic Road offers expedition-style trips to Mongolia in January and August, and other destinations during most other months. Its nine-day August 2020 Mongolia trip will cost from $5,250 per person based on two sharing, including airport transfers, two nights’ hotel accommodation in Ulaanbaatar, vehicle rental, fuel, third party vehicle liability insurance, the services of a guide and support team, accommodation, food and entrance fees; nomadicroad.com
A fully guided three-day, two-night itinerary at Three Camel Lodge costs from $2,420 per person based on two sharing, including airport transfers, accommodation, meals and excursions including the Yol Valley and Flaming Cliffs. A return internal flight from Ulaanbaatar to Dalanzadgad costs $300 per person and the flight takes 90 minutes each way; threecamellodge.com
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