12-31-24: My Final Three Predictions for 2025 (And Updates on the First Three)

by Louis Navellier

December 31, 2024

Last week, I brought you my first three predictions for 2025. Here are my final three predictions.

Prediction #4: S&P 500 Earnings Will Grow by Double Digits in 2025

The latest back testing of my Stock Grader and 8-factor Fundamental model confirmed that the breadth and power of the overall stock market is expanding. This is indicated by the fact that the top 65% of my 8-factor fundamental model now perform well, up from the top 55% in the previous quarter.

Also, the S&P 500’s earnings are accelerating their gains from 8.4% in the third quarter to over 10% for the next three quarters. I am especially excited about stocks with: (1) positive analyst earnings revisions, (2) robust operating margin expansion, and (3) accelerating sales growth expected in the first half of 2025.

The market will also be fueled by the fact that M2 money supply continues to grow. Overall stock market appreciation is highly correlated to M2 money growth, which is money in checking accounts and up to 1-year deposits. There is also evidence that the “velocity of money” is increasing. When consumers are out and about (spending), the velocity of money and prosperity rises. The advent of Trump 2.0 is boosting the velocity of money since uncertainty has ended with his “drill baby drill” and other pro-business policies.

For 2025, the companies I like most will be helping to expand the utility grid and cloud computing. Later in 2025, stocks benefitting from a natural gas renaissance should become more dominant. Other than that, I wish I could tell you that 2025 is a year when you can buy ETFs in a single sector, but the truth is that this is still a market of “every stock for itself.” There are big winners in my Stock Grader system (like A-rated Nvidia) in the same sector with stocks I would sell, like D-rated Advanced Micro Devices and F-rated Intel. There are similar discrepancies in almost every sector, so stock picking remains vital in 2025.

My recent back testing of the Stock Grader confirmed that stocks with an A-quantitative grade and a B or better fundamental grade have had the best potential performance. These are the stocks that are typically characterized by: (1) persistent institutional buying pressure (which creates an Alpha and lower Standard Deviation), (2) strong forecasted sales growth, (3) positive analyst earnings revisions, (4) operating margin expansion, and (5) a strong earnings surprise history. Now that a broader array of 20% of stocks are leading the overall market, up from just 5% a few months ago, the breadth and power of the overall stock market is improving. With a strong dollar, we are also focusing more on domestic U.S. companies.

Prediction #5: Trump’s Threatened Tariffs Will Not Be Permanent or Inflationary (to Americans)

As far as Trump’s proposed tariffs are concerned, these are not permanent tariffs, or “consumer taxes.” This is how President-elect Donald Trump negotiates, so when candidate Trump said that he intended to levy 25% tariffs on Canada and Mexico, plus boosting tariffs by 10% on China in retaliation for illegal immigration and drug trafficking, that was only designed to guilt Canada and Mexico to force them to secure their respective borders. Trump stressed that these tariffs on Canada and Mexico would remain in place “until such time as drugs, in particular Fentanyl, and illegal aliens stop this invasion of our country.”

Trump likes to fight economic wars rather than military wars by making our trading partners feel uncomfortable. He wants to negotiate from strength, so if Canada and Mexico, seal their respective borders to stop the flow of illegal drugs and aliens, then he would not impose these 25% tariffs.

As a result, I suspect that Canada and Mexico will cooperate with Trump 2.0; otherwise, the economic cost of 25% tariffs could destroy their respective economies. In fact, Canadian Prime Minister Justin Trudeau has already visited Donald Trump at Mar-a-Lago to discuss border security and trade, while Mexico’s new President, Claudia Sheinbaum, has also pledged cooperation on immigration. China could be more problematic, but President-elect Trump has invited Chinese President Xi to his inauguration, so he clearly wants to engage in diplomatic negotiations with China. Even though Chinese President Xi is not expected to attend, Trump has sent out an important signal that he wants to mend fences with China.

As for Europe, the trade deficit with the European Union (EU) surged 8.9% in September to $13.18 billion, according to Eurostat. All the talk about tariffs hurting the U.S. are largely emanating from Europe, since Germany is in a recession and the EU is scared that if they do not cut their tariffs to low U.S. levels (e.g., 2.5% on imported vehicles), then Trump 2.0 may raise tariffs to high EU levels. ECB President Christine Lagarde, who was openly hostile to Donald Trump before he was elected President, has been leading the anti-tariff crusade, despite the fact that the EU imposes larger tariffs than the U.S.

Prediction #6: A Peace Dividend in 2025 Will Deliver Greater Global Prosperity, and More Trade

President-elect Donald Trump ran on promptly ending the war between Russia and Ukraine. Now that an estimated million people have been killed or maimed in the past three years, this brutal conflict has decimated the number of young men in both Russia and Ukraine. Now that the third winter of this war has begun, fighting has curtailed some, despite the Biden Administration’s approval to hit Russia with longer range missiles, install more landmines and continue to use cluster bombs, but this winter would be a perfect time for a ceasefire and then an end to the war before its third anniversary in late February.

Ukrainian President Volodymyr Zelenskyy is seeking a peace deal with Russia, but both Britian and the U.S. asked Zelenskyy to reject any peace deal with Russia. The Biden Administration is obviously thoroughly embarrassed by this war between Russia and Ukraine. Although there are losers in most wars, both Russia and Ukraine will likely claim to be winners. Russia clearly captured more territory and Ukraine put up a much better defense than most military experts anticipated. Nonetheless, President-elect Trump will strive for Russia and Ukraine to agree to a cease fire and to agree to a peace agreement.

The Middle East war is far more complex, with multiple national players. Syrian President Bashar al-Assad and his family fled to Russia as rebel leaders took over Syria, creating an unknown new power and questions of how these rebels will lead Syria. The Financial Times reported that Assad raided the Syrian central bank and fled with an estimated $250 million in $100 bills and two tons worth of 500-euro notes.

The key to lasting peace in the Middle East is to expand the Abraham Accords, wherein Arab countries pledge to support Israel’s right to exist. If the new Trump Administration can convince Saudi Arabia to join the Abraham Accords, it will help promote peace in the Middle East and further isolate Iran.

I’ve also reported on recent unrest in South Korea and Brazil facing President-elect Trump. The bottom line is that wars are expected to end soon, and peace is expected to prevail based on the assurance from the U.S. that all countries have the right to grow and prosper. The Trump Administration knows that wars waste an incredible amount of money, stifle economic growth and stunt countries demographically – as Russia and Ukraine will soon discover, when they notice their shortage of able-bodied young men.

China has been fairly quiet on the military front recently. They are masters at winning economic wars more than fighting military wars. Chinese President Xi has recently been purging the leadership of its military, so I do not expect that China will invade Taiwan or undertake any serious military action, so if just one or both of these existing global hot spots reach a peaceful resolution in 2025, a peace dividend, similar to the end of the Cold War in 1991 can provide exceptional market gains in the years ahead.

Update on My Previous Three Predictions

My first three predictions, in brief, were that: (1) the Fed would cut rates four times in 2025, not just the two times they indicated on December 18, (2) GDP would likely grow 4% in 2025, and (3) natural gas would retake its natural place as a leading energy source, instead of being flamed-out or being banned.

For the first prediction, on interest rate cuts, the Fed will be forced to cut rates due to falling interest rates around the world, causing an international flight to U.S. Treasuries, which will drive rates lower. For example. China’s 10-year government bond yields fell below 1.7% last week, the lowest level in two decades. These low global yields will naturally cause capital flight to the U.S. and since the Fed never fights market rates, I am confident that the Fed will cut its key interest rates four times in 2025.

A strong U.S. dollar will also help to reduce the prices of imported goods. The Fed’s favorite inflation indicator, the Personal Consumption Expenditure (PCE) index, rose only rose 0.1% in November and just 2.4% in the past 12 months, the smallest monthly increase in the PCE since May. The core PCE, which excludes food and energy, rose just 0.1% in November and 2.8% in the past 12 months. When shelter costs (owner’s equivalent rent) are stripped out, PCE inflation is running at the Fed’s 2% target rate.

However, Fed Chairman Jerome Powell’s unfortunately defeatist comment – that the Fed’s year-end inflation forecast has “kind of fallen apart” – did not inspire any confidence. That caused a pause in the Santa Claus rally with a grossly overdone sell-off, wiping out all the stock market gains since the big Presidential election rally. Fortunately, a late Santa Claus rally was sparked by the tame November PCE inflation report, so the stock market is rallying into Christmas and should also rally into the New Year.

One other reason the Fed should cut key interest rates four times in 2025 is the Financial Times reported that U.S. companies are now defaulting on junk loans at the fastest rate in four years. The default rate in the leverage loan market rose to 7.2% in October. Many companies have been refinancing low-yielding loans originated during the Covid era and are increasingly struggling to pay higher interest rates.

Since banks are notorious for selling these leveraged loans to private credit firms, the possibility of a major default in the $2 trillion private credit industry is rising fast. As I have warned here in the past, a private credit default could trigger another “Black Swan” event that could freeze the private credit industry. All this could possibly be averted if the Fed aggressively cut key interest rates more in 2025.

While it is true that the 10-year Treasury bond yield has risen to 4.62% last week, up from 4.17% on December 6^th, I mentioned on Fox Business last week that incoming Treasury Security Scott Bessent should be able to manage the Treasury auctions far better than the current Treasury Secretary Janet Yellen. In the meantime, I suspect that the bond vigilantes are annoying President-elect Trump, so it will be up to incoming Treasury Security Scott Bessent to help push Treasury yields lower, with Fed rates following.

My second prediction, about 4% GDP growth, doesn’t look likely now, but most economic statistics look backwards, based on Biden’s policies, not forward. For instance, the Commerce Department reported last week that durable goods declined 1.1% in November due largely to a 12% decline in defense orders. Excluding transportation, durable goods orders declined by a more modest 0.1%. The good news is non-defense capital goods orders rose by 0.7% and have risen 2.1%, so there is a “green shoot” in this report!

There is more good news: MasterCard Spending Pulse reported that holiday shopping between November 1^st and December 24^th, excluding auto sales, rose 3.8% vs. the same period a year ago. Consumer spending rose 3.1% during the same period a year ago, according to MasterCard. Some other details from MasterCard were that online spending rose 6.7% (vs. 6.3% a year ago) and in-store spending rose 2.9% (compared with 2.2% a year ago). Overall, it was a solid holiday shopping season in multiple categories.

My third prediction, on natural gas, gained credence last week on news that Qatar is threatening to cut off LNG shipments to the euro-zone over legislation that will penalize companies that fail to meet EU criteria on carbon emissions, plus strict human rights and labor laws. Frankly, this is a great opportunity for the U.S. to step in to fill in any void if Qatar cuts off LNG shipments to Europe. Already, Russia is exporting more LNG to the euro-zone than the U.S. (since May), because the Biden Administration is striving to restrict LNG expansion due to his own environmental concerns. Frankly, the U.S. scores a lot higher than Qatar or Russia on carbon emissions, labor and human rights, so LNG exports should rise under Trump!

And finally, last Thursday, The Wall Street Journal published a fine article on how the U.S. is expected to become increasingly dominant in LNG exports under Trump 2.0. The U.S. is already the largest LNG exporter, but we should become increasingly dominant in the upcoming years, replacing all the Russian LNG exports to Europe. The Biden Administration’s Energy Department warned recently that “unfettered exports” of natural gas would boost global emissions, but natural gas is far cleaner than coal, so it is good and “clean” to replace coal with natural gas for electricity generation in more markets around the world.

Navellier & Associates owns Nvidia Corp (NVDA), in managed accounts. We do not own Advanced Micro Devices, Inc. (AMD), or Intel Corp. (INTC). Louis Navellier and his family own Nvidia Corp (NVDA), via a Navellier managed account, and Nvidia Corp (NVDA), in a personal account. He does not own Advanced Micro Devices, Inc. (AMD), or Intel Corp. (INTC), personally.