Fisher Investments Reviews Market Risks for 2025

Transcript

Ken Fisher:

So every year—and about 17 times during the year—I'm asked what risk factors do I see for the market in the period ahead? And as we're in the fourth quarter of the year in 2024, it's what risk factors do you see in 2025? And let me just pause a little and say I don't really finalize a lot of those views until I get a little closer to the end of the year, because I always do my one-year-ahead forecast finalized toward the back of the year.

And why do I do it that way? I do it that way partly because one important risk factor is the sentiment about stocks and other capital markets is too ebulent. And the easiest and best time of the year, in my opinion, to assess that Is at year end when you look at what other people are forecasting. And so I like to collect, and have for decades and decades, year-end forecasts which start coming in early in December. And by the latter part of December you can kind of make a consensus view about where do I think actual consensus sentiment sits? And what does that say about risk?

As Sir John Templeton famously said, "Bull markets are born on pessimism, grow on sentiment—bull markets are born on pessimism, grow on skepticism, mature on optimism and die of euphoria." What we don't want to see in terms of risk is too much optimism, too much euphoria. And there's ways to figure that, but they figure best at the end of the year looking into the subsequent year.

The other points, of course —and let me just take another second on that. That's because sentiment is a reflection —in a very good way—very directly of what the demand for owning equities is. And demand bounces around in the short term because demand bounces around in the short term. If it sentiment gets too high, demand gets too high. That's a risk factor.

The other risk factors are the ones that you think about more commonly, which are things like geopolitics and central banks doing something screwy. And while they almost always do something screwy, the question is: Do they do really bad things and do them screwy? The other ones are about the formalized major governments of the world doing things screwy. These are all things to think about.

Let me just take a second and step back. Because we're in the fourth quarter of 2024, you may have read someplace in a newspaper or something that there's an election this year. And that election is often focused primarily on the presidency. And it's easy to see why that's true. But we also get the election of a complete Congress that will take hold next January. And in that, as we get that Congress, that's as important in terms of risk that may come out of the government as is the election of a president. And I've talked about this many times in the past. Do we have a president and Congress heavily made up of one party? Do we have gridlock where at least one of the chambers is in opposition, maybe both to the presidency? All that remains to be seen. And we'll be able to come back and look at before the end of the year again.

When we look into what do we think the actual real risks of 2025 are there's always the—and I mentioned a few moments ago—geopolitical. There's always a risk of more features like regional wars that would play in ways that maybe at this point we can't fully anticipate. Let me say this, because I've said it many times in the past, regional wars never stop a bull market. They just don't. There isn't a history of that.

We haven't had very many world wars, and let us for sure hope that we do not. A world war would stop a bull market cold in its tracks and create a significant bear market. The fact is, we can't predict at this moment in time if another regional conflict, —not the principal ones, people talk about Russia, Ukraine and what's going on in the Middle East centered around Israel. If there are other new ones beyond those two, it's not hard to get a pretty good handle on actually, and see that they will not stop this bull market.

To make a little minor point on that: If you rank world stock markets this year by performance, America is up toward the top of the pack, of course, and then you've got other countries doing well and some doing badly. But Israel is one of the better performing stock markets. I just point that out in terms of the risk and the fears that people think about. I just want those that are overly afraid of war to see that.

But a war on the other side of the world, further stretching the West against forces attacking the West, in some way or another could ripple into world war. And that's a risk to be watched. I've long talked about risks geopolitically in certain regions like conflict between India, China and Pakistan. These are all things to monitor, but there's no particular reason to see any of them as exploding. But all of those risks need to get assessed before we actually make a forecast about 2025. And I'm glad that you're interested. And I'll be back with that forecast, including the risks as we begin the year.

But it's a little premature to jump to conclusions about them. People tend to jump to conclusions about risk, I might point out more often than they jump to conclusions about opportunity. And the reason that's the case is because the average American hates losses two and a half times as much as they hate a same size gain. And the average European hates losses 4 to 6 times as much —depending on which European countries we're talking about— as much as they love a similar sized gain. And so they're prone to focus on the risk and the downside and not prone to focus on the upside.

Most of history—since stocks tend to rise twice as often as they fall over a very long history—most of history is better thought of as something where you should be focused more on the opportunities, less on the risk—considering the risks, but not overweighting them. Most people are too prone to overweight the risks. But we'll be back and I'll be talking to you again in one of these videos about them as we confront the new year—late December, early January. Thank you very much for listening.

Voice of Ken Fisher:

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