The Market’s Biggest Risks and Opportunities in 2025 — ft. Tom Lee | Prof G Markets

S&P Outlook

Tom Lee, co-founder of Fundstrat Global Advisors, predicts a dynamic year for the S&P in 2025, with expectations of it reaching 7,000 before retreating to 6,600. He attributes this to a dovish Federal Reserve and a pro-equities president, which he describes as a "Trump put," providing a positive backdrop for equities 1. However, Lee warns of potential headwinds in the latter half of the year, including market concerns over deficits and the end of the business cycle 2.

The stock market is more expensive than it was two years ago, so the markets may be a little less patient if there are any stumbling blocks.

--- Tom Lee

These factors suggest a tale of two halves for the market, with optimism giving way to reality as the year progresses.

   

Small & Mid-Caps

Lee sees significant growth potential in small and mid-cap stocks for 2025, driven by a favorable economic environment and less regulatory burden. He believes that a dovish Fed and falling capital costs will benefit cyclical companies, particularly outside the Mag 7 3. Lee also notes the potential for international markets to outperform, as cyclical industries like industrials and financials stand to gain from global economic shifts 4.

If the Fed remains dovish and the cost of capital actually starts to fall, that's going to benefit many cyclical companies.

--- Tom Lee

This outlook suggests a reversion to the mean, where smaller stocks could finally have their moment in the spotlight.

   

Tariff Impact

Tariffs pose a significant risk to the market in 2025, with potential for retaliatory measures that could slow global trade and increase costs for U.S. consumers. Lee explains that such a scenario could lead to optical inflation and a weaker economy, putting pressure on the stock market 5. He suggests that the White House might need to reconsider its stance if these policies negatively impact market performance 1.

If the White House wants to measure success through the stock market doing well, I think they'd pretty quickly realize that a tariff war isn't popular with Wall Street.

--- Tom Lee

This analysis highlights the delicate balance between policy initiatives and market reactions.