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As one yr moved in direction of its finish, it’s simple to look again and replicate on those that obtained away. Inventory market stars this yr embrace Palantir, a share I checked out intimately again in January. I didn’t make investments however the share has since soared 358%!
With a brand new yr below a fortnight away, my consideration is popping to what alternatives the inventory market may provide me in 2025.
Causes to be cheerful in 2025
May the approaching yr be an excellent one for the inventory market?
Now we have already seen the FTSE 100 index hit an all-time excessive this yr. So too have the NASDAQ, S&P 500, and Dow Jones Industrial Common indexes on the opposite aspect of the pond.
Not solely is there clear momentum, investor enthusiasm appears excessive and lots of companies have been reporting robust efficiency in 2024. If these constructive elements can proceed, maybe aided by improved financial efficiency within the US, we may see additional inventory market information shattered in 2025.
Warning indicators flashing
Nonetheless, as billionaire investor Warren Buffett says, buyers must be fearful when others are grasping. I believe it’s notable that Buffett has been promoting tens of billions of kilos’ value of shares this yr.
What occurs within the US financial system and certainly the world financial system stays to be seen. This yr has seen an unconvincing efficiency within the British financial system for my part. I may see us dipping into recession subsequent yr as simply as limbering up for a brand new development spurt.
My largest concern concerning the inventory market as we head in direction of 2025 is valuation.
The Palantir inventory value has surged, but it surely now trades on a price-to-earnings ratio of 385. Even permitting for probably stronger earnings in future, that appears so much like bubble territory to me.
What I’m doing earlier than the yr ends
The UK market appears much less overvalued than its US counterpart for my part. But when the US sees a crash in 2025, I believe the London market would absolutely endure too.
I’ve been promoting off some shares in my portfolio that I reckon look overvalued. However I’ve additionally been shopping for these days, as I proceed to see some shares as bargains even because the market general appears more and more frothy to me.
That displays my method of shopping for particular person shares relatively than attempting to “purchase the market”, for instance by investing in a tracker fund.
For example, one share I bought within the final month is JD Sports activities (LSE: JD).
The FTSE 100 retailer has had a tricky yr on the inventory market, starting with a revenue warning in January.
It’s down 39% up to now this yr and 40% over 5 years. Mixed with a dividend yield of lower than 1%, it might not seem like a really enticing share to purchase.
I do see dangers right here, resembling the associated fee and execution dangers of the corporate’s aggressive retailer opening plan at a time of weak client confidence.
However I reckon the present JD Sports activities share value may transform a long-term discount. Demand for sportswear is more likely to stay excessive and the corporate’s world operation provides it economies of scale. It has a robust model, massive buyer base and thrilling development plans.