Several economic indicators have soured in recent months, hidden behind the stock market’s strong returns. Consumers are starting to struggle, as seen by rising credit card balances and delinquencies.  

That’s at odds with expectations for the stock market to trend higher in 2025. While the market can trend higher, consumer spending is the lion’s share of the economy. If that’s in trouble, markets will likely struggle in 2025.

Part of the reason for struggling consumers? High interest rates. Since 2020, interest rates on credit cards have moved from 15% to over 20%. And even with the Federal Reserve cutting interest rates, the trend for credit card rates is on the rise.

That makes it more challenging for consumers carrying a balance on their credit cards to make their minimum payments. Over time, overly high rates can cascade out of control.

With rates rising, consumers look to longer-term loans to afford monthly payment costs. That’s leading to longer holding times for products such as automobiles. And a longer hold time can also reduce future spending.

While markets have been trending higher over the past two years, the past year has seen a rise even as unemployment has ticked higher, from 3.4% in early 2023 to 4.2% at the end of 2024.

Unemployment is still well under its historical average, for now. But a further trend higher bodes poorly for consumer spending as more and more find themselves out of work.

To see the full issues consumers are contending with as we enter 2025, click here.

The end of one year and the start of another leads to many predictions. However, a look at investment predictions reveals that predictions don’t tend to have any accuracy to them.

It doesn’t matter if the predictor is an expert in their field or not. The major annual predictions from the big Wall Street banks are often wide of the market’s actual results. In fact, the average prediction tends to simply take an existing trend and extrapolate it.

That’s why many analysts see a good market return in 2025. It follows on the recent past from 2024 and 2023’s returns.

Over time, the average prediction runs in a much lower band than actual market returns. The experts aren’t good at predicting major market swings, both lower and higher. Failing to predict a market crisis is one thing.

If the experts can’t make good predictions, what indicators can investors use? One potential measure that may work is volatility. Hedge funds tend to also use volatility targeting as a way of better predicting extreme market moves.

While predictions often fail to pan out, it’s still important to plan for potential market scenarios ahead of time. That way, investors won’t get blindsided with a rapidly-changing market. And can even set themselves up to profit, especially during fearful times.

To read the full analysis on the trouble with predictions, click here.

With the calendar flipping to 2025 this week, investors should be reflecting on what’s likely in the year ahead. Following two strong years in the stock market, particularly driven by the AI growth trend, 2025 may look different.

However, for now, the existing trend is bullish. So investors should generally stick with that bullish theme, at least into the start of 2025. Markets will start to provide some warnings about dangers, and investors will be able to sidestep significant losses.

Markets typically move in cycles. 2024 played out closely to its historic cycle for a Presidential election year. There was a strong rally to start, a pullback in the spring and summer, and a general trend higher.

So, looking to 2025, the bullish cycle still remains strong. However, investors are somewhat bearish overall. There are a mix of factors at play.

First, there’s no recession in sight, and business conditions remain strong. And while unemployment is on the rise, it’s still well under a crisis level. That could change later in 2025, and investors should watch unemployment trends carefully.

Plus, the first year of a new presidency tends to be strong for markets as well.

On the flip side, there is rising uncertainty over factors such as tariffs. While markets may fare well in 2025, more volatility is the most likely outcome.

To view the full forecast for 2025, click here.