The State of the Economy and Stock Market in Early 2025

As February ends, how can we summarize the economy and stock market so far in 2025?  

Here are a few high-level things to know about the state of investing at the start of this year.  

After the presidential election last November, there was a lot of noise around market activity, including talk about volatility and economic policy uncertainty. (Not unexpected— change often fuels nerves about the economy and market.) Even still, many assumed U.S. equities would continue to outperform (in part because of the strong U.S. dollar).  

However, the markets often disregard what the masses expect. So, two months in, what are we seeing in the stock market in 2025?  

Right now, all eyes are on the performance profile outside the United States. A bit unexpectedly, European equities and other developed international markets are succeeding.  

What does that mean for your portfolio? We always maintain exposure across the globe as part of a proper diversification structure, and as such, we have a healthy allocation in international equities.   

But what about future stock market investing? Is hesitancy valid amidst policy changes? 

Earnings drive markets, and Q4 2024 earnings showed strong growth. (The average estimate was 7%, and we saw 12-13% earnings growth — almost double expectations!) 

Despite these exceptional earnings, the market reaction is muted, tempered by uncertainty around trade, tax, and immigration policy.  

However, in light of the positive earnings cycle, the still-strong labor market, and the possibility for future stock market rallies, we still prefer equity over fixed-income investing. There is excessively more risk in fixed income than in equity market participation.  

With all of that information, what should a wise investor do next?  

The to-do list is short:  

1. Expect noise around the economy and market to increase a few decibels over the next 2-3 months as tariff discussions continue. 
2. Stay invested, and don’t shy away from equity market participation (even when headlines create angst). 
3. Focus on your financial plan. 
4. Talk to your advisor if you have concerns. 

If you need a grounding reminder, review our foundational post on the importance of time in the market. (One main takeaway: “History shows that investors who acknowledge the fact that downturns are an inevitable part of investing, look beyond short-term volatility, and remain invested have a greater chance of achieving long-term success.”) 

Additionally, if you partner with Credent, know that we are watching your portfolio, we implement strategic risk management, and we make adjustments as needed.  

Right now, the data around earnings, consumers, and inflationary trends supports equity market participation and gives us minimal need to pause and reevaluate. Even still, we will continue to do so on a regular, ongoing basis.  

For more clarity and confidence in the economy and stock market in 2025, talk to a team member by filling out the form below.