Where to invest in 2025?

What Are Analysts’ Predictions and Why Do We Keep Reading Them When Their Reliability Is Close to a Coin Toss??

Every New Year Brings the Ritual of Predictions by Analysts and Financial Institutions.

Forecasts about how stock markets, currency exchange rates, interest rates, or commodities will perform fill the pages of financial media. It’s a perennially popular topic. Despite the widely acknowledged fact that the success rate of these predictions is remarkably low, nearly everyone ends up reading at least one.

Why Is This the Case?

The answer lies somewhere in the psychology of human behavior and the inherent nature of capital markets. Investing isn’t just about rational capital allocation; it’s also deeply emotional. It’s about perception, the desire to understand, predict, or even control the future. Analysts’ predictions cater to this need—they offer investors a framework to visualize potential developments, even though this framework is far from perfect.

Markets, by their nature, are unpredictable. They are influenced by countless variables, from macroeconomic factors to the irrational behavior of participants. These variables and data points often appear chaotic and overwhelming. Analysts serve as interpreters, taking this complexity and distilling it into structured insights. They provide a sense of order or system: “If this happens, then that will follow; if something else occurs, then markets might respond in this way.”

It’s these fixed points that investors seek. Analysts’ predictions offer scenarios, potential paths, and possibilities for future developments, often contradictory but still valuable. They serve as tools to help investors navigate the chaos and lean toward one plausible outcome.

We all have our own opinions. When reading analyses and forecasts, we often look for confirmation of our own views or an alternative perspective to challenge them. These insights may also reveal connections and possibilities we hadn’t considered before.

Professional investors understand that predictions are far from perfect and do not treat them as absolute truths. Yet, these outlooks can still be valuable inputs into a broader decision-making process. Predictions may highlight key factors or risks that warrant attention or consideration. They don’t need to be accurate to inspire deeper analysis or strategic planning.

In essence, predictions are less about certainty and more about providing a lens through which we can attempt to make sense of an inherently uncertain world.

The Retrospective Selection Effect

One reason why predictions remain popular despite their limited accuracy is our natural tendency to remember successes and overlook failures. When an analyst gets a prediction right, their success is widely highlighted and celebrated. This retrospective glorification of achievements creates a bias that leads investors to repeatedly seek out forecasts from those who have correctly predicted something in the past.

This effect fuels the perception that some individuals or institutions may have an exceptional ability to foresee market developments, even though such successes are often the result of chance rather than skill. It’s a powerful psychological phenomenon that keeps the cycle of predictions alive, even when the broader track record shows mixed results.

Self-Fulfilling Prophecies

Predictions can also have the power to influence the market itself. If enough investors believe that a certain asset will rise, capital begins to flow into it, which can actually initiate the anticipated growth. This dynamic often ensures that predictions maintain their relevance, even when their accuracy proves to be limited.

Analysts’ forecasts are not and never will be a guarantee of correct decisions. Their true value lies in providing investors with a tool for structured thinking, helping to identify key risks, and facilitating the planning process. Even when predictions fail in precision, they remain an essential part of market dynamics because they reflect not only what markets think but also what they want to believe.

In this sense, predictions are not instruments of certainty but tools for managing uncertainty—and that is precisely why investors will continue to seek them out.

What Could Play a Critical Role in the Markets in 2025?

Naturally, I must also create my own forecast and list the parameters that could have the most significant impact this year.

1. Federal Reserve Policy

The Federal Reserve remains a key player influencing the markets. The question for 2025 will be how aggressively the Fed approaches interest rate changes. If inflation stays within the tolerable range, the Fed might keep rates stable or lower them slightly. However, unexpected inflationary pressures could lead to stricter policies, negatively impacting growth stocks and increasing volatility in bond markets.

Currently, both the U.S. economy and labor market appear strong, prompting the Fed to revise its forecast for rate cuts this year from four to two, which immediately led to a market decline just before Christmas.

2. Technology and AI

The tech sector remains the driving force of U.S. markets. Artificial intelligence and related innovations are on the rise and could significantly influence the development of tech companies. Investors will focus on businesses successfully implementing this technology, not just in software but also in traditional industries like healthcare, manufacturing, and energy.

It’s not just about integrating AI into processes and business models, but also about the entire supply chain involved in building infrastructure for AI. This includes a wide range of sectors, from core technologies to services and the supply of energy and raw materials.

3. Fiscal Policy and Government Spending

2025 is a post-election year, meaning the new administration could bring changes in fiscal policy. Spending on infrastructure, energy support, or defense could impact specific sectors. Debates about the federal debt ceiling and potential increases could cause short-term volatility.

Donald Trump is known for his ability to shock with his ideas, which could provoke significant movements in affected sectors, in either direction.

4. Corporate Earnings

Market performance will depend more heavily than ever on corporate earnings, given the currently high market valuations. Elevated valuations, measured by indicators like P/E (price-to-earnings) or P/S (price-to-sales), signal that the market has optimistic expectations for future earnings and corporate growth.

The technology sector, in particular, exemplifies this optimism, with investors betting on long-term growth driven by innovation and AI.

As company valuations reach higher levels, markets become more sensitive to interest rate changes. Higher rates mean increased financing costs and reduced attractiveness of equities compared to fixed-income assets like bonds. If the Fed continues its strict monetary policy or maintains high rates longer than expected, it could lead to a revaluation of companies, especially those with extremely high valuations.

High valuations also increase market volatility. If corporate results fail to meet optimistic expectations, high-valuation stocks may experience larger declines. This is especially true for growth companies, where much of the anticipated earnings are in the future, and any disappointment can have dramatic consequences.

5. Geopolitical Factors

Although the focus is on the U.S., geopolitics remains a significant risk factor. Tensions between the U.S. and China, particularly in technology and trade, could impact the tech sector and supply chains. Additionally, new conflicts or escalations in sensitive regions may drive demand for safe-haven assets like bonds, which could negatively affect equities.

Currently, Donald Trump’s interest in Greenland is a talking point, and it is unclear how he will approach the conflict in Ukraine once in office, given his pre-election statements about a rapid resolution. Uncertainty also lingers over his stance toward the EU as a whole.

6. Other Factors

Of course, other factors could also play a role, such as consumer confidence, energy prices—particularly oil and natural gas—and any unexpected global events with wide-reaching impacts.

Where to Invest in 2025

From my perspective, 2025 is significantly harder to predict than 2024, when it was clear that the year would be marked by interest rate cuts—an essential factor for the return of capital to the markets.

The second challenge lies in elevated company valuations, combined with the absence of a significant market correction since October 2022.

I personally believe that a correction of around 20%, bringing the S&P 500 down to the 5,000 or even 4,800 level, would be very logical and, sooner or later, necessary—especially when compared to the average market growth trend.

With the increasing use of AI in market analysis and the evaluation of individual companies, it will become increasingly difficult for equity investors and stock pickers to identify companies that are mispriced. Elevated company valuations currently offer limited opportunities for major investments, unless you are a passive investor regularly funneling money into indices with your eyes closed.

The Securegate Approach

What Will We Do at Securegate and How Will We Adapt to Current Market Conditions?

We have a significant advantage in that trading stocks is not our primary focus. In essence, it makes little difference to us what phase the market is in.

Of course, with our strategy, we favor writing options on the PUT side, as we prefer leveraging the market’s growth potential. However, we can also achieve profits in a sideways or slightly declining market.

A market correction in the range of 20–30% is already quite substantial. It leads to a significant increase in option prices and creates heightened pressure on positions favoring market growth.

Under such conditions, it will be essential to select positions with greater distance from the market and significantly enrich the portfolio with positions favoring market declines, such as credit hedges (offering protection and income components) or, in the case of a larger correction, cost hedges, which, however, reduce overall profitability.

Where to Invest in 2025

When considering where to invest in 2025, take into account all of the above:

• Diversify across investment instruments, market segments, and geographies.

• Consider learning to use options, if you haven’t already, as they open up a whole new world of possibilities.

Option trading, particularly strategies focused on writing options, can be a reliable way to generate steady, repeated profits. You can learn more about these strategies in our online courses, where we guide you step-by-step on how to master this approach.

If you’re curious about why option writing works as a tool for consistent returns, check out our article, “Why Writing Options Is Like Running a Casino.”