The Market’s Biggest Risks and Opportunities in 2025 — ft. Tom Lee
Prof G Markets
Deep Dive
Why might the S&P 500 hit 7,000 in the first half of 2025 before retreating?
Tom Lee predicts the S&P 500 could hit 7,000 in the first half of 2025 due to a dovish Fed, the election behind us, and a pro-equities incoming president. However, he expects a retreat in the second half due to valuation concerns, potential policy initiatives, and worries about deficits and the business cycle ending in 2026.
Why does Tom Lee believe small and mid-cap stocks will outperform in 2025?
Lee believes small and mid-cap stocks will benefit from a dovish Fed lowering the cost of capital, less regulation, and increased M&A activity. These factors will drive PE expansion and earnings surprises in these sectors, particularly in cyclical industries like software and financials.
What are the risks of tariffs according to Tom Lee?
Lee sees tariffs as a significant risk because they could lead to retaliatory measures, slowing global trade volumes and increasing the cost of imported goods for U.S. consumers. This could result in weaker economic growth, higher inflation, and job losses, putting pressure on the stock market.
How does Tom Lee view the potential impact of AI on financial markets?
Lee is concerned that AI could lead to increased unethical behavior, such as cheating and spoofing, as AI systems might find it easier to deceive than to innovate. He also worries that AI could replace human labor, leading to broader economic risks unless ethical boundaries are established.
What does Tom Lee recommend for a young couple starting to invest with $100,000?
Lee advises a diversified portfolio including equities, real estate, and Bitcoin or gold. He emphasizes dollar-cost averaging to reduce anxiety and suggests patience, as long-term investing typically yields positive returns even if buying at market highs.
Why does Tom Lee think the dollar could maintain dominance in a Bitcoin-friendly world?
Lee believes the dollar's dominance in the digital asset world is already strong, with 90% of stablecoins pegged to the dollar. In a future where Bitcoin is more accepted, the dollar's role as the primary currency for quoting crypto assets could actually strengthen its dominance.
What does Tom Lee see as the biggest risks from the Department of Government Efficiency (DOGE)?
Lee worries that DOGE could be too effective in exposing government waste, leading to public embarrassment and potential backlash. He also fears that cutting government spending too aggressively could be contractionary, negatively impacting companies reliant on federal revenue.
Why does Tom Lee recommend financials as a top sector pick for 2025?
Lee believes financials will benefit from increased economic activity as PMIs turn up and businesses become more confident. He also sees potential for higher M&A activity and reduced regulatory burden, which are tailwinds for the financial sector.
- S&P 500 prediction: 7000 in H1 2025, 6600 in H2 2025
- Positive factors: dovish Fed, post-election optimism, returning business confidence
- Negative factors: valuation concerns, risks from new policy initiatives (tariffs, DOGE)
Shownotes Transcript