Stock Market Outlook: January 2025

What to expect in 2025

The 2020s have been an unusually eventful decade for the economy. They’ve seen a pandemic-related recession, sharp inflation, rising and falling interest rates, and bull and bear markets in stocks and crypto. And this year only marks the midpoint of the 2020s.

We can’t tell you what will happen to the markets in 2025. But we can look at the trends that are driving markets right now, and evaluate whether they’re likely to continue over the coming year.

Stocks: More upside ahead?

The S&P 500 index rose by roughly 25% last year, far more than its long-term average return of 10% per year. It can be tempting to interpret this kind of strong performance as a bad omen that “what goes up must come down.” But history suggests that the current bull market could continue from here.

From 1932 to 2023, the average bull market lasted 4.9 years and had a cumulative return of 177.6%, according to research from investment banking firm Stifel ^[0]

It’s worth noting here that the S&P 500 went through a bear market in 2022, reaching its bottom in October of that year. That was only two years and three months ago, and the index has risen by about 70% since then.

In other words, we may not even be at the halfway point of the current bull market yet, according to history.

Bonds: Will the Fed keep cutting rates?

A key principle of the bond market is that bond prices tend to move in the opposite direction of interest rates. When rates go up, old bonds (which pay a fixed dollar amount of interest) become less attractive to investors, as new bonds may pay a higher rate of interest.

But when rates go down, old bonds and their fixed interest payments become more attractive to investors, as new bonds may pay a lower rate of interest.

In the early 2020s, the Federal Reserve raised interest rates aggressively in an effort to control inflation. But since Sept. 2023, it has been lowering them gradually. Many bond ETFs that track the broader bond market, such as the Vanguard Total Bond Market Index Fund ETF (BND), tumbled in price between 2020 and Sept. 2023, but have started to recover since then.

Will the interest rate cuts — and the bond market recovery — continue in 2025? It’s hard to say. Federal Reserve chair Jerome Powell said in December that he only expects two small interest rate cuts in 2025 due to persistently-high inflation.

That stubborn inflation may be a major factor in the bond market’s 2025 performance. If inflation stays high, we may only get two small interest rate cuts — or even less — and the bond market’s brief recovery may end. But if inflation eases, the Fed may continue dialing down rates, pushing bond prices upwards.

Crypto: Will the bull market continue?

Bitcoin more than doubled in price over the last year, reaching the $100,000 mark for the first time ever in December 2024. There are numerous reasons for this bull run, but two stand out:

• Pro-crypto shifts in regulation, such as the approval of spot Bitcoin ETFs.

• The Bitcoin halving event in April 2024.

One of these things may continue in 2025 — but the other won’t.

The incoming Trump administration has taken a crypto-friendly regulatory stance. In December, the president-elect even proposed eliminating capital gains tax on U.S.-issued cryptocurrencies. That could draw more money into digital assets, just as the approvals of spot Bitcoin and Ethereum ETFs did last year.

However, the 2024 Bitcoin reward halving event — in which the payout for Bitcoin miners dropped from 6.25 BTC per transaction block to 3.125 BTC per block, another key driver of the 2024 bull market — will not reoccur in 2025.

Bitcoin’s mining reward is automatically halved roughly every four years in order to keep the supply of Bitcoin steady. Every long-term crypto bull market has been associated with a halving event, and the next one isn’t until 2028.

So while Bitcoin may rise higher in the current bull market, and may get some juice from pro-crypto policies from the incoming government, one of the main drivers of last year’s bull run has likely lost its steam already in 2025.

» Looking to get into crypto? Check out the best crypto exchanges & apps.

Term of the month: LEAPS Options

If you believe that the stock market will rise over the course of 2025, the traditional way to put your money behind that belief is by purchasing stocks — for example, index funds.

But for advanced traders, there is another way to speculate on long-term stock price movements, and it may be cheaper than buying the stocks themselves: Long-term equity anticipation securities, or LEAPS options.

What is a LEAPS option?

LEAPS are options with unusually long durations. While typical options expire in less than a year, LEAPS may expire up to 2 years and 8 months in the future.

Aside from their long lifespans, LEAPS work the same way as normal put options and call options. They track an underlying stock and have a strike price and expiration date. Some LEAPS track individual stocks, while others track indexes such as the S&P 500.

A LEAPS call buyer pays a small amount of money (a “premium”) for the right to buy the underlying stock or index at the strike price on or before the expiration date, and wants the market price to go above that strike price before expiration so that they can exercise or resell the option for a profit.

If you’re a LEAPS trader who thinks stocks are headed lower in the next couple of years, you’d probably buy LEAPS puts. A LEAPS put buyer pays a premium for the right to sell the underlying security on or before the expiration date, and wants the market price to go below the strike price before expiration.

Because of their long durations, LEAPS provide a way for investors to make big bets on stock price movements over the next few years, without needing to spend the money to buy an equivalent number of shares of the underlying stock.

The pros and cons of LEAPS options

For experienced investors who have a lot of capital to trade with, LEAPS may provide certain advantages over ordinary stock trading:

• May be cheaper than the underlying stock. An options contract typically controls 100 shares of the underlying stock, and many LEAPS contracts are currently a lot cheaper than the price of 100 shares.

• Potential for higher returns. A successful LEAPS trade can potentially double or triple your money from a much smaller move in the underlying stock.

However, LEAPS aren’t for everyone — they may not be practical for smaller-balance or less-experienced investors. LEAPS have some distinct drawbacks compared to regular stock ownership:

• Higher-risk than stock ownership. Like any other options trade, buying LEAPS comes with a risk of losing your entire investment if the market price of the underlying stock is below the strike price (for a call) or above the strike price (for a put) at the time of expiration. LEAPS are typically more expensive than short-term options.

• Limited time horizon. One advantage to directly owning stocks is that they can yield many years of gains. LEAPS are longer-term than other options, but they still have a limited timeframe — you could miss out on any post-expiration-date gains in the underlying stock.

» Want to start trading options? See our picks for the best options trading brokers.

Dates that could move markets this month

Economic events

• Friday, Jan. 10: Bureau of Labor Statistics monthly employment report. A report showing hiring levels and various measures of the unemployment rate. 

• Wednesday, Jan. 15: BLS consumer price index (CPI) report. A key inflation gauge. The employment and CPI reports could give investors hints about what the Federal Reserve will do with interest rates in future meetings; unexpectedly high unemployment or low inflation could indicate that rate cuts are on the way. 

• Friday, Jan. 24: Michigan consumer survey data for January. The University of Michigan will release its preliminary data for this month’s survey on Jan. 10 and its final data for this month’s survey on Jan. 24. The survey has become a closely watched indicator of ordinary Americans’ perceptions of the economy.

• Wednesday, Jan. 29: Federal Reserve interest rate decision. The Fed will conclude its meeting and announce the new level of the federal funds rate. It is expected to keep the rate unchanged, but it may announce a 0.25% cut. 

• Thursday, Jan. 30: Bureau of Economic Analysis first estimate of U.S. gross domestic product (GDP) in Q4 2024. A measurement of whether the economy grew or contracted over the quarter.

Earnings

Below is a table of blue-chip stocks that are reporting earnings in January, with the expected dates and average analyst estimates for their upcoming earnings reports.

We've filtered the list for companies with a market capitalization of at least $250 billion. These are high-volume stocks whose earnings reports are often major trading events for options traders and day traders.

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» See our picks of the best day trading platforms.