In 2024, global stock markets performed well, with the S&P 500 and Nasdaq leading the way. Despite high interest rates and above-target inflation, the global economy demonstrated resilience. The S&P 500 delivered a return of nearly 25%. The surprising strength of the economy, a booming AI and chip sector, and expectations of rate cuts in 2025 were major contributors to this surge. 

Looking ahead to 2025, there is some uncertainty that could impact markets both positively and negatively. Here, we will focus on some of these key factors. 

(FOMC Projections) 

The first factor to watch is the hawkish Federal Reserve. The economic resilience of 2024 resulted in higher-than-expected inflation projections for 2025. Fed members forecasted a median 2.5% for both PCE and core PCE in 2025, which is 0.4% and 0.3% higher than the September projection. This comes with only two expected rate cuts and a 0.4% weaker GDP than 2024. The projections suggest that rates will remain high for longer while economic growth slows further. Some of the anticipated benefits of rate cuts are likely already priced in but could be at risk in the first quarter due to these changes. The futures market is already questioning whether the second rate cut will materialize later in the year. 

The second factor to watch is President Trump. There is considerable uncertainty surrounding tariff policy, the geopolitical risk landscape, and the budget deficit. During his first term, stock market volatility was elevated due to the China trade war, but overall performance remained strong. This provided traders with many opportunities, albeit with increased risks. In his new term, tax cut policies could support the markets initially, but attention will likely shift to tariffs. Depending on their severity, tariffs could negatively impact the market, with inflationary effects potentially forcing the Fed to maintain a tight monetary policy. 

The third key factor is the artificial intelligence and chip sectors. In 2024, these sectors drove the market with significant returns. How much of that growth is justified will be tested in 2025. In our view, investment in these areas will continue, albeit at a slower pace, maintaining a positive influence on the S&P 500 and Nasdaq. Through correlations and secondary effects, this influence could extend to global markets as well. 

The fourth factor is the manufacturing sector. Since the COVID-19 shock, manufacturing has remained the weak link of the global economy. This has weighed heavily on manufacturing-dependent economies such as Germany and China. If this sector finally begins to recover, it could create a balancing effect between U.S. and global stock markets—excluding potential tariff risks. 

(E-mini S&P 500 Daily Chart) 

The adjusted price-to-earnings (P/E) ratio of the S&P 500 currently stands at 25.03x, significantly above the 25-year average of 18.76x and the four-year average of 21.78x. This makes it difficult to argue that the U.S. stock market is not expensive overall. For 2025, the consensus growth rate for earnings per share is 10.33%. Even if prices remain unchanged, the P/E ratio would still be 22.69x by the end of the year, which is above historical averages. This suggests that the upward potential for the market may be more limited in 2025. 

Despite the slightly negative fundamental outlook, the S&P 500 remains in a clear uptrend, which is likely to continue in the coming months unless a new factor disrupts the market. However, upward momentum is expected to weaken, with gains potentially constrained by the yellow trendline, failing to reach the upper boundary of the trend channel. If the lower boundary of the trendline is breached, a short-term correction could occur, likely lasting only a few weeks. Such a correction could provide a buying opportunity for bullish traders. Our target for 2025 is around 6400-6500.