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The Street

Business

Michael Sheldon, CFA, CFP

Wall Street veteran fund manager unveils market forecast for 2025

US Federal Reserve Inflation Donald Trump Goldman Sachs Stock Market

You had to look far and wide to find folks who didn’t think the Fed would embark on an interest rate-cutting binge in 2024.

Most economists and analysts expected the Federal Reserve would declare victory and pivot away from fighting inflation following the most extensive rate hikes since Volcker broke inflation's back in the 1980s.

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While the Fed did indeed cut rates in 2024, it did so by far less than most anticipated. While markets modeled for as many as six cuts in 2024, the Fed didn’t start cutting rates until September, months after projections. In the end, it only reduced interest rates three times last year.

The slower pace of rate cuts caught many flat-footed, but not Bob Doll. A Wall Street veteran whose career spans four decades, Doll wrote in December 2023 that economists were too optimistic and it would cut rates by less than expected.

His prescient rate prediction was among a slate of accurate forecasts, which makes his recently released outlook for 2025 worth paying attention to.

Robert "Bob" Doll is a 40-year market veteran. He recently released his 2025 market forecast.
Bloomberg/Getty Images

Many of Bob Doll’s predictions panned out in 2024

Bob Doll joined Crossmark in May 2021 as the firm’s Chief Investment Officer (CIO) and took on additional responsibilities as President and Chief Executive Officer in January 2024. He has 40 years of industry experience and is currently a portfolio manager for multiple Crossmark large-cap investment strategies.

Prior to working at Crossmark, Doll held roles as Senior Manager and Chief Equity Strategist at Nuveen (as well as at Blackrock), President and Chief Investment Officer at Merrill Lynch Investment Managers, and served as Chief Investment Officer at Oppenheimer Funds, Inc.

At the end of each year, he looks back at his 10 market forecasts for the year that was...before rolling out his new top 10 market forecasts for the year ahead.

Doll did pretty well with his forecasts in 2024. For example, he accurately forecast that:

The inflation ceiling of the 2010s would now become an inflation floor during the 2020s. In other words, the 2-3% inflation ceiling of the last decade will become the 2-3% floor for this decade. At last check, headline and core inflation were 2.7% and 3.3% over the last 12 months. So far, Doll's right.
The Federal Reserve Bank will cut rates fewer than the six times originally forecasted by market participants. The Fed cut rates just three times, far less than market pundits thought back in late 2023.
Earnings for the S&P 500 will fall short of the double-digit EPS forecast by the market heading into the year. As of Jan. 3, 2024, FactSet currently forecasts 2024 full-year EPS of 9.5%, shy of others overly optimistic outlooks.
The S&P 500 energy, financials and consumer discretionary sectors (on average) will outperform the utility, healthcare and real estate sectors (on average). In 2024, the former outperformed the latter, returning 19% versus 11%. Nice job, Bob.
Geopolitical hotspots continue to flare around the world but have a minimal impact on global financial markets. The war between Ukraine and Russia remains a mess, hostilities in the Middle East were front-page news in 2024, and growing partnerships between countries that include Russia, North Korea, Iran, and China remain a concern for Western nations. Despite all that conflict, the stock market reached all-time highs.
The White House, Senate and House of Representatives will all turn Republican in the 2024 election. When all was said and done, the House of Representatives and the Senate flipped in favor of the Republicans, although with somewhat narrow majorities.

How markets and the economy look now

Last year was very good for the stock market and the economy.

A combination of healthy consumer spending, solid labor markets, and positive economic data (that surprised the upside) all contributed to positive returns last year.

Earnings growth also provided a healthy tailwind for stocks in 2024. So did investors' willingness to pay more for those earnings, given that the forward price-to-earnings ratio for the S&P 500 expanded last year and now sits near 22.

It also didn’t hurt that investors were fine with the risk of concentrating increasingly more money within the stock market’s biggest names, including Apple and Nvidia. By year’s end, the top ten stocks in the market represented approximately 40% of the S&P 500’s market cap. That’s a record.

Rates were helpful, too. Labor demand slowed after the first quarter of last year, and concerns about further weakness in the job market ultimately led the central bank to start cutting short-term rates in September 2024. Altogether, rates were lowered by 1% in 2024, boosting profits and fueling business spending.

That said, Doll is concerned that we may see additional weakness in the labor markets, and for this reason, he believes it’s still too soon to give the all-clear on the Fed’s much-talked-about soft landing.

Here are a few additional highlights from last year that Doll recently shared:

While the Fed started to cut short-term rates, longer-term interest rates drifted higher. Today, the yield on the U.S. Treasury 10-year note currently stands at 4.69% (versus 3.71% on the date of the Fed's first rate cut last year). That's problematic.
At least so far, the Fed’s 2% inflation target remains elusive. For reference, the latest data from the BLS indicates that the CPI inflation index rose 2.7% over the past year while core inflation (excluding food and energy) rose 3.3%.
Large-cap stocks handily beat small-cap stocks (again). In 2024, the S&P 500 index rose 25% while the Russell 2000 index advanced 11.5%.
Growth stocks once again outperformed value stocks (again). In 2024, the Russell 1000 Growth Index jumped 33.4%, while the Russell 1000 value index rose 11.5%.
U.S. stocks outperformed non-U.S. stocks (again). In 2024, the S&P 500 Index rose 25%, while the MSCI EAFE Index (developed countries outside the U.S.) rose just 4.3%, and the MSCI Emerging Markets Index rose 8.1%.

Bob Doll releases his 2025 predictions for the market, economy

According to Doll, the outlook for the global economy in 2025 may be far from normal.

More 2025 stock market forecasts

Financial markets may experience a wide range of outcomes due to recently re-elected President Trump’s policies regarding tariffs, taxes, deregulation, etc…which are both pro-growth and anti-growth.

That said, here are his 2025 Market Predictions:

Economic growth slows and the unemployment rate remains range-bound between 4.0% and 5.0% in 2025 (versus 4.2% today).
Inflation proves stuck and fails to reach the Fed’s 2% target rate. Thus, the Fed Funds rate falls less than expected. As of today, the markets are currently forecasting just one rate cut in 2025 (www.cmegroup.com).
U.S. 10-year Treasury Bond yields remain in the range bound between 4.0% and 5.0%.
S&P 500 earnings fail to increase the consensus rate of 14% in 2025 but all 11 S&P 500 sectors post positive EPS growth.
Equity volatility rises and the VIX Volatility Index approaches 20 for only the 3rd time in the past 14 years. For reference, the VIX Volatility Index averaged 29.1 in 2020 versus a 10-year average of 18.1.
Stocks experience a 10% correction in 2025 as stocks fail to keep up with earnings (i.e. P/E’s contract).
The equal-weighted S&P 500 outperforms the market-cap-weighted S&P 500, and value beats growth. According to DataTrek, the last time the equal-weighted S&P 500 outperformed the cap-weighted S&P 500 over a one-calendar-year rolling basis occurred during the second half of 2022 and the first quarter of 2023.
Financials, energy and staples outperform healthcare, technology and industrials in 2025.
Congress passes the Trump tax cuts and reduces regulation but tariffs and deportation are less than expected.
DOGE cost cutting efforts make progress but substantially short of the $2 trillion forecast.

Stay tuned, and remember to check back in 12 months' time to see how things turn out!

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