Last month, during the thick of the holidays, I found myself in a rare though not entirely unprecedented predicament: I wasn't sure how to bet on the stock market in the coming year.
In my December column, I told you there were three possible outcomes for 2025 — all of them likely, and to a similar degree. I also told you that I would get back to you when I could wrap up, in fact, probably.
Well, I'm back — and with an answer that surprised me in more ways than one.
Mention the three possible outcomes you identified: a small decline, one double-digit positive year, or another big year such as the gains of 2023 and 2024. You also said that the latter is the least expected and will shock most people because three consecutive big years are legendarily rare.
Now, dare I say it – let them rarely be legendary. That's because I think what's probably going to be a stock market increase of 15% to 25% — maybe a little bit more.
However, there's also one major development here that became less unexpected to me – and which may be more universally shocking. The implication is that European stocks should perform, quietly but strongly, because my forecast above is for the MSCI World Index. S&P 500 should lag in Europe.
What has changed since the end of the year? Like I said then, I would continue to look for signs of feelings that would swing and that the swing would happen soon.
I also told you that American investors were optimistic while foreigners were pessimistic. As it turns out, the pessimism abroad is extreme — more generally depressed than optimistic Americans. Thus, even a moderate year for foreign GDP, especially Europeans, will result in a significant positive surprise for them. They are more sensitive now.
Decades ago, behavioral evidence showed that US investors hate their losses more than they like comparable gains – about 2 times as much. Then my former research partner Mer Stateman published the same methodology showing that UK and German investors are more spread-eyed about losses, by factors of 4 to 1 to 1, respectively.
Europeans are more risk takers than Americans. I've known that for a long time. Few seemed to remember it.
Now, I've discovered how much more so than usual now is the case, with absolute Trump terror overwhelming the Europeans – much more so than was measurable in December. It's shocking, almost beyond words. Since the US elections, they have become unusually pessimistic. It's as if they were MSNBC commentators, only without the smiles and occasional jokes.
Thus, European stocks are very depressed, and also, but less so, most non-US markets. So, most of them, but of course not all, have been quietly beating the S&P 500 year to date. Britain, Germany and Israel have already set new all-time highs in 2025.
Coupled with that, inherent in the composition of US stocks versus foreign stocks, value stocks, which are statistically cheaper on earnings and other measures than tower growth stocks, should outperform growth stocks for the first sustained time in years.
But why do I say it's “inherent”? In industry sectors, American stocks and growth stocks are intertwined. By market cap, almost all growth stocks are American. Technology and communications services total more than 40% of the S&P 500, almost none of Europe's.
Thus, when growth stocks like the Fabulous 7 are lagging the market, as evidenced by the NASDAQ lagging the S&P 500 even when both are rising, value must be leading. Europe too! But this is more than just sectors. It is also the sentiment of the country.
Do you doubt me? Okay, but it's happening right before your eyes. Get your iPhone. Use the regular Apple News Market app to search for the S&P 500, NASDAQ Composite, and MSCI Europe. There he is. Europe leads.
And if you look at specific European countries, you'll see it's pretty widespread with the exception of Denmark (which is mostly double Novo Nordisk). Otherwise, Europe leads the S&P 500 which leads the Nasdaq, he said.
While I'm at it, I will add that I expect emerging market stocks to lag, as they fall mostly across categories that I expect to lag behind utilities and distressed commodities.
So, please – rejoice and think geography as you think about stocks this year. And happy 2025.
Ken Fisher is the founder and CEO of Fisher Investments, a four-time New York Times best-selling author, and a regular columnist in 21 countries globally.
