The Bear Market Isn't Coming: 3 Reasons Why We're Not Heading There

The global economy is expected to experience robust growth in 2025, with the exception of a sharp slowdown in China. This is a stark contrast to the doom and gloom predictions that have been circulating in recent months. So, what's driving this optimism? Let's dive into three key reasons why a bear market is unlikely to materialize in 2025.

1. Sticky Inflation and Resilient Growth

One of the biggest concerns for investors has been the impact of high interest rates on economic growth. However, Bruce Kasman, the chief economist at J.P. Morgan, believes that the global economy has adapted to these higher rates and will continue to grow. He notes that "inflation will remain sticky, growth will remain resilient, and the underpinnings of the global economy will still remain in place here that we can live with high interest rates for a long period of time." This suggests that the economy is more resilient than many investors realize.

2. Divergence Across Countries

Another factor that is likely to support economic growth in 2025 is the divergence across countries. Kasman points out that "the world is moving away from common developments that have created synchronization effectively, the reverberations of the pandemic shock. And as those reverberations are now fading, we think you're gonna see more divergence across countries." This means that while some countries may face challenges, others may continue to grow, contributing to overall global economic resilience.

3. Productivity Boom from AI

The continued adoption of artificial intelligence (AI) could lead to a productivity boom, similar to what was seen with the Internet in the late 1990s. This period saw the S&P 500 achieve remarkable returns, with the index rising by 33% in 1997, 29% in 1998, and 21% in 1999. This historical data suggests that technological advancements can drive sustained market growth.

The Law of Accelerating Returns, which demonstrates the tendency for technological advances to feed on themselves, increasing the rate of further advance, supports the idea that AI could enhance margins and profitability for a broad swath of companies in many different industries. This could ultimately lead to a longer or stronger stock market rally, as the broader application of AI technologies within corporations could affect their bottom lines positively.

Furthermore, the inauguration of a new President who intends to ensure the U.S. remains the AI leader through significant investment bolsters this alternative scenario. This political support for AI development could further accelerate the adoption and integration of AI technologies, contributing to sustained market growth and avoiding a bear market.

In conclusion, the global economy is expected to remain resilient in 2025, despite high interest rates and geopolitical uncertainties. The continued adoption of AI, the divergence across countries, and the resilience of the global economy are all factors that suggest a bear market is unlikely to materialize in 2025. Investors should remain optimistic and continue to invest in the market, as the potential for growth remains strong.