10 Predictions for 2025

Market predictions are silly. We all learned this a long time ago. But that doesn’t mean they’re completely worthless. Even though forecasts are almost always wrong, they can be entertaining and educational. That’s all I’m trying to do with this post. Entertain and educate. Needless to say, but I have to say it anyway, nothing in this list is investment advice. I’m not doing anything with my portfolio based on these predictions, and neither should you.

Here is my list from a year ago. I got some right and some wrong. I expect my predictions to have a terrible track record, and that’s why I try to ride the market rather than outsmart it. So why am I doing this? Well, it’s fun to look back on what you thought was possible a year ago.

When you see that you were so off on things, it reminds you just how difficult it is to predict the future. I also learn a lot by doing this. I uncovered some things that I didn’t know or forgot I knew.

I’m going to change one thing up this year. Last year after I published my list, I regretted not including conviction for each prediction. In other words, do I actually believe this is going to happen? Would I bet on it? And if so, what odds would I need to place the bet? So, I’m going to include betting odds on these predictions and convert that into percentages for those of you who don’t donate money to FanDuel/DraftKings. With that, these are my ten predictions for 2025 in order of what I think is most to least likely to happen.

1. Private investments surge (-600/86% chance)

2. Degens aren’t leaving. They’re not f*cking leaving. (-475/83%)

3. Money stays in money market funds. (-300/75% chance)

4. Mortgage rates remain high. The housing market stays frozen. (-250/71%)

5. Equal-weight S&P 500 outperforms cap weight (-110/52%)

6. Nvidia to disappoint on an earnings release. Stock closes down >10% on the day. (+100/50%)

7. VIX spike to 50 (+145/41%)

8. MicroStrategy levered ETF blows up (+350/22.2% +3,000/3.2%)

9. The worst performers in 24 will be the best in 25 (+400/20%)

10. Momentum keeps going in the first half, but we have a double-digit correction in the back half and end down on the year. (+10,000/1%)

11. Obligatory, something comes out of nowhere that makes at least half of these predictions look very dumb. (-1000/90%)

Private investments surge (-500/83% chance)

The story in private markets is a simple one. For the first few decades of their existence, alternative investments were only available to institutional investors. Given these large pools of capital have a time horizon of forever, not really but you know what I mean, it made sense to give up liquidity in exchange for the potential of higher returns. And that’s more or less how the story played out, generally speaking.

Both the investors and the investees did well—the proverbial win-win. And over time, institutional investors increased their allocation to a large percentage of their portfolio. So large, that they couldn’t possibly grow it at the same rate in the future as they had in the past. So, these large asset managers are moving on to different berries that have yet to be squeezed.

High net-worth investors have had access to private investments for a long time, but what’s coming next will be similar, albeit on a much smaller scale, to what ETFs did to mutual funds. The technology and customization that’s coming will make it much easier for large private asset managers to deliver solutions that work for clients, and not just those with ultra-high net worth. This is no comment on future returns. That’s another topic for another day.

BlackRock, one of the biggest public market players, is pushing to replicate its success in private markets. I wouldn’t bet against them. The chart below paints a pretty compelling visual of what they’re going for.

Blackstone, the 800-pound gorilla in private markets, had less than 10% of assets under management as Blackrock as of the end of the third quarter, but a larger market cap. It’s because the revenue is stickier, the margins are higher, and they can generate a bonus in the way of carried interest that ETFs cannot.

We are living through a structural change in markets. Torsten Slok has a great stat showing that 87% of businesses in the United States that are generating >$100 million in revenue are privately held. Fewer companies are coming public thanks to regulation and several other factors. Investors are adapting to the new environment. This mega-trend will continue in 2025.

Degens aren’t leaving. They’re not f*cking leaving. (-475/83%)

It was a good year for people who view the market as a casino. Our Degen Dow (not investable) was up 53% in 2024.

You might think that the only reason these people are gambling is because they’re pulling 21s. That’s not true. Their investments don’t have to work for them to continue playing the game. If they did, Las Vegas wouldn’t exist. Remember in 2022 when basically everything was down? That didn’t dissuade them one bit. Average daily option volume grew 14% from 2022 to 2021.

People have gambled since the beginning of time. Technological advancements have brought this to the masses. The genie is out of the bottle, there’s no putting him back in.

Money stays in money market funds. (-300/75% chance).

There is nearly $7 trillion sitting in money markets.

The current yield on all this cash will kick off almost $300 billion in interest over the next twelve months, assuming no changes in the overnight rate (big assumption). I think inflows will slow down, but I don’t know what would have to happen for people to pull more money out than the amount that’s being generated by interest. Maybe 3% overnight rates would do it, but I don’t think they will come down that much. Cash is the most inertia-prone asset in the world. I don’t see human nature changing in 2025.

Mortgage rates remain high. The housing market stays frozen. (-250/71%)

Out of every prediction on this list, this is the one I most hope I’m wrong about. 7% mortgage rates are dangerous for the economy and are just downright shitty for those unfortunate people who are forced to pay it.

High mortgage rates have dramatically slowed sales in the existing housing market. Now new home sales are turning south soon. Because supply is so low, prices are so high and are pushing would-be buyers into renters.

Short-term interest rates have come down, but mortgage rates remain stubbornly high. Not sure what will change this dynamic in 2025.

Equal-weight S&P 500 outperforms cap weight (-110/52%)

I made this same prediction last year, and it was basically over after the first quarter of the game. The largest stocks have been outperforming for a while now, and the end of 2024 went out with a bang. 81% of stocks trailed the index, by far the worst monthly showing for as far back as we have data.

For the last three years, which includes the bear market of 2022, the S&P 500 has compounded at 9% a year. The equal-weight version has done 4.5% over the same time. Bet on red enough times and it’s gotta hit, right? Right????

This is the year that the rest of the market outperforms the mag 7.

Nvidia to disappoint on an earnings release. Stock closes down >10% on the day. (+100/50%)

Nvidia is up 835% over the past two years. There wasn’t a single day over that time when the stock fell more than 10%. I have no way of proving this, but I’d guess there aren’t many (any?) stocks that have ever enjoyed that type of run.

Matt Cerminaro, who we have big plans for this year, made a beautiful chart showing how Nvidia, the actual business, has performed versus expectations. The bar kept getting raised in 2024 and they kept jumping over it. I’m guessing, actually I’m really not (50/50) that this might be the year that the pole vault falls short.

If they fail to match the lofty expectations, the stock could be in for a nasty ride as investors reset expectations.

Probably the most consensus prediction on this list, and frankly, cowardly of me to be sitting right in the middle of the fence.

MicroStrategy levered ETF blows up (+350/22.2% +3,000/3.2%)

Michael Saylor was the face of the Bitcoin movement in 2024. His strategy of issuing equity and convertible debt catapulted MicroStrategy’s market cap from $10 billion at the beginning of the year to $65 at the end. At one point in November, it got as high as $106 billion.

And so naturally in today’s degen investing world, it received the 2x ETF treatment. And investors piled in.

I’m afraid this is going to end badly. I guess it already is. One of these products, MSTX, is already in a 78% drawdown. “Gee Michael, how brave of you.”

I started this post weeks ago before it started to freefall, I double pinkie promise. Anyway, this is not the decline I was looking for. I’ll explain more in a minute.

Victor Haghani was quoted in the WSJ “We estimate the probability of the leveraged MicroStrategy ETFs going bust in the next year at between 20% to 50%,” said Victor Haghani, who runs the investment firm Elm Wealth.

In the same article, Dave Mazza said: “These two firms have created something that it is now clear the market can’t handle,” said Dave Mazza, CEO of competitor Roundhill Investments. “It’s really a risk to do this with options. You can’t control the market.” 

Okay, so, when I say that these levered ETFs would blow up, I wasn’t making a call on MicroStrategy itself. In fact, I was thinking its continued success would lead to its downfall. I thought, because of the size and funky nature of this structure, that it would get so big that something underneath the hood would crack and these things would nose dive 80% in a day.

Now that it’s down almost 80% (the 2x), I think the odds of a catastrophic one-day meltdown have decreased substantially. When I started writing this a few weeks ago I had this at 22% chance. Now I think it’s down to 3%.

I’m almost embarrassed to say that I’m tempted to buy this dip (MSTR, not the bath salt version), but I’m not going to, which means that I probably should (definitely not investment gambling advice).

VIX spikes to 50 (+145/41%)

It’s not very bold to think that there will be a VIX spike at some point this year. Happens every year right? Wrong! I was surprised to see the average maximum VIX level by calendar year is 39.

Three of the last four years have seen a max VIX spike of under 40. I think that ends this year. What causes it? Your guess is as good as mine.

The worst performers in 24 will be the best in 25 (+400/20%)

Bespoke tweeted a crazy stat today that pairs very nicely with this prediction: The 10 worst performers in 2023 were all down again in 2024. That’s pretty wild when you consider that the index was up more than 20% each year.

I think that changes in 2025 and I am betting on it. I’m long DLTR and MRNA, two absolute dogs. Not that you asked, but to be fully transparent, MRNA is pure speculation and the position is sized for that. If it rolls again, I’m out. I’m giving DLTR a longer leash.

I 20% think some of the 10 worst performers of the last two years will be on the top 10 list this year.

Momentum keeps going in the first half, but we have a double-digit correction in the back half and end down on the year. (+10,000/1%)

There is a high degree of difficulty on this one. Parlays usually don’t work. The market is down one out of four years, so 25% is my baseline for the latter part of this prediction.

64% of all years have seen a double-digit decline, as you can see in the chart below.

How many times has the market been up double digits through June and ended down on the year? Only once, in 1928. This surprised me too, thought there would have been a few more years on the list. So, yeah, 100-to-1 odds on this one. Any takers?

Bonus. Something comes out of nowhere that makes at least half of these predictions look very dumb. (-1000/90%)

Ben Graham once said, “Nearly everyone interested in common stocks wants to be told by someone else what he thinks the market is going to do. The demand being there, it must be supplied.”

Predictions are impossible. Everyone knows this, I hope.

If you reframed the question “What do you think the market will do next year?” to “Do you think you can predict the future,” then maybe it would become more apparent how silly all of this is. Of course, nobody can predict the future. Of course, nobody knows what the market is going to do next year.

I encourage everyone to make a list like this. It will serve as a reminder twelve months from now about how wrong you were about so many things, and hopefully, that will encourage you not to invest in a way that counts on you getting the next twelve months right.