Looking back at 2024, the US stock market soared with the S&P 500 index rising by approximately 27%. As we enter 2025, the optimistic market sentiment continues, but there are also four major risks looming ahead.
According to a report by USnews, Arun Bharath, Chief Investment Officer of Bel Air Investment Advisors in Los Angeles, predicts that the global bull market in 2025 may continue, with the US likely outperforming other regions in the world. Bharath also sees potential for US companies to leverage artificial intelligence and other data science to optimize business models and increase output.
However, the US economy still faces four risks, leading to ongoing uncertainty in the stock market performance and the possibility of a collapse.
General market analysis suggests that the inflation rate in 2025 is expected to remain above the Federal Reserve’s 2% target.
Adam Coons, Chief Investment Officer of Winthrop Capital Management, warned, “In the short term, the stock market faces some serious risks. If consumer spending remains stronger than expected and inflation rises, and the Fed is unable to further lower interest rates, the stock market performance may encounter some turbulence.”
Michael Ashley Schulman, Chief Investment Officer of Running Point Capital Advisors, mentioned that the current stock market has exhibited high valuations, indicating a potential for a rapid correction.
Peter Tanous, founder of Lynx Investment Advisory, expressed concerns over the rising interest costs of US national debt. He pointed out the staggering amount the government is spending this fiscal year exceeding $800 billion on debt interest payments, which may surpass the $850 billion defense budget, stating, “I fear the interest cost on US Treasuries has spun out of control.”
Tanous further elaborated on the impact of countries like China, Japan, and the UK demanding higher interest rates on US bonds to reflect the growing deficit, potentially leading to a surge in overnight rates, market disturbances, and a major stock market crash. “I am certain this will happen, but I do not know the exact timing,” he remarked.
President Trump had implemented a high tariff policy during his first term, including imposing tariffs on imported goods such as steel and aluminum. On his inauguration day, Trump announced a 25% tariff on Canada and Mexico and an additional 10% tariff on Chinese imports.
During his presidential campaign, Trump also mentioned imposing a 60% tariff on all Chinese imports.
Analysts believe that Trump’s policies of tariff hikes, tax cuts, and immigration restrictions will impact inflation, trade, and ultimately affect the stock market.
Some analysts are worried about sudden downward risks in the US stock market, which could be triggered by factors such as trade wars, surging bond interest rates, and even Fed rate hikes.
Lori Van Dusen, Founder and CEO of LVW Advisors in New York, highlighted that recent increases in corporate operating costs, highly uneven profit growth, and weakened consumer discretionary spending pose significant risks to the US economy.