The 2025 handoff is about as good as it gets for stock investors, but there are significant potential headlines. Let’s take a look at the state of play in the new year. Here’s the good news first. Market tailwinds in 2025 are, first and foremost, a stable economy with 3% GDP. Second, record profits are expected for a second year in 2025, and not just from the tech sector. Low-cost sectors such as health care and materials and industrials are expected to increase returns in the high teens. Revenue Growth 2025 (Estimated) Technology 21% Healthcare 20% Industrials 19% Materials 18% Consumer Staples 5% Energy 4% Source: LSEG And it’s not profits that are growing. Profit margins are expected to hover near a record 12%, which means corporate America is taking a bigger share of revenue as its own profit. .SPX YTD Mountain S&P 500, YTD Stock Markets 2025: Tailwinds Strong economy (3% GDP) Record corporate profits (up 15%) Record net profit margins (12%) Here are the market headwinds in 2025. There are four of them. First, there is a risk that the Federal Reserve, in an effort to combat inflation, will make a policy mistake by refusing to cut rates and focus less on its other mandate (job growth) and job creation. will allow the market to deteriorate. Second, the Trump administration’s strengths (business-friendly, deregulation-oriented, M&A-friendly, and tax-relief-oriented) could be countered by tariffs that are too high and will hurt growth. Third, with tech prices near record highs, the end of the AI story is likely, as investors may rebel against endless cycles of spending without significant increases in earnings or productivity. A more likely scenario would see tech prices stagnate, even as profits continue to improve, resulting in lower valuation levels for technology stocks, and (perhaps) lower prices in things like healthcare and materials. There will be higher valuation for sectors with Finally, there is a threat from bond watchdogs rebelling against higher spending and potentially forcing interest rates higher. US10Y YTD 10-year Treasury yield climbs, YTD “As 2025 begins, rising long-term bond yields are the biggest challenge for the bull market,” Julian Emanuel of Evercore ISI said in a recent note to clients. . The yield on the 10-year Treasury hit 4.63 percent on Friday, the highest level since May. Emanuel notes that yield stress is “agnostic” to stock prices, meaning that bond yield stress over stocks can occur when equity market prices are high (as they were in 1994 and 2022), and when They Are Not (2018). Emanuel also noted that there is no uniform “threshold” for the 10-year yield over several decades that would cause stocks to automatically correct. However, with the 10-year yield currently at 4.6%, he opined that a move above 4.75% could trigger a “deep correction” in equities, and above 5% could be a “bull market risk”. .