Will the Stock Market Crash by 2025? Here’s What Experts Say

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For a financial journalist, this might be the question that friends and new contacts commonly pose: Will the stock market experience a significant downturn anytime soon?

The brief response from me and any trustworthy market observer would be: I have no idea. By definition, markets are inherently unpredictable. Only a handful of self-proclaimed experts accurately predicted the previous one.

bear market

And others will likely anticipate the subsequent one. The reality is that at some point, somebody somewhere is always forecasting a downturn. Similar to broken clocks, these predictors will occasionally be accurate.

As such, I am able to offer certain insights gained from reporting on financial markets over a span of more than thirty years.

Table of Contents

What information we have regarding the stock market

The primary point to remember is that significant drops in the financial markets do not always happen abruptly within a few days. Often, stock values gradually decline and continue falling. For instance, during the dot-com crash, the Nasdaq Composite Index required 31 months to shed 78% of its worth, from March 2000 through October 2002, occasionally experiencing temporary bullish rallies amidst this period.

Secondly, events in the financial markets often do not align with economic conditions. “Black Monday” in 1987 occurred over three years before the closest recession began. Financial markets look ahead, and they might decline merely because previous projections proved overly hopeful. Could there be a downturn in Canada’s economy this year? It’s quite possible, yet this would likely have minimal impact on how well your shares perform.

Thirdly, the optimal times to invest are frequently just as things reach their lowest points. Missing these opportunities can prove costly. For instance, during 2022—a particularly challenging year for financial markets—TD Asset Management demonstrated that $10,000 invested in the S&P/TSX Composite Index on December 31, 1991, would have ballooned to $60,423 after three decades. However, missing out on even the top-performing 1% of those trading days within this timeframe could significantly reduce your returns.
lost
wealth and end up with only $3,747 by December 31, 2021.

To put it differently, even if you managed to foresee a downturn beforehand, you would still have to accurately determine the precise moment to reinvest in order to truly benefit from your prediction.

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The four riders of the financial Armageddon

Significant market crashes typically occur alongside these four occurrences:

Overvaluation
Imbalance
Shock
Loss of confindence

This is how they collaborate.

Overvaluation

during the previous period. We’re not referring to specific speculative segments (like cannabis stocks in 2017) but instead widespread elevated valuations, as indicated by

the CAPE ratio

And additional tools. (CAPE refers to the cyclically adjusted price-to-earnings ratio; this metric divides a stock’s price by the company’s 10-year averaged earnings, adjusted for inflation, in order to predict future performance.)
An underlying

imbalance

In an economy that results in the inefficient allocation of resources—such as constructing houses where they’re not required or financing web-oriented ventures destined for failure—the imbalance often goes unnoticed by most individuals until it becomes irreversible. Revisiting 2015’s production reveals this clearly.

The Big Short

is instructive here.)
A

shock

For instance, factors such as an abrupt increase in energy costs, a decline in currency value, the downfall of a systemically important entity like Lehman Brothers, or unpredictable occurrences such as COVID-19 can set off this shift. These events alter investor confidence and prompt lending institutions to adopt stricter loan policies.
A widespread

loss of confidence

From investors who withdraw their funds from the markets, which amplifies the downward trend.

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Is there going to be a stock market crash in 2025?

In 2025, some might contend that stock prices are inflated and that significant turbulence has arisen due to substantial tariffs levied or contemplated by the U.S. against key trade allies. However, this hasn’t exposed an overarching economic disparity, and market participants have shown remarkable fortitude. This situation brings to mind 1998, when the collapse of Long-Term Capital Management occurred, as well as 2006, following the demise of Amaranth Advisors after incorrect natural gas investments. Despite these instances where valuations were arguably excessive, the repercussions remained limited, allowing the markets to continue their course.

Often, stock markets ascend despite what traders call the “wall of worry,” which consists of numerous potential threats. Even when faced with many risks, one typically discovers that their investments have increased over the course of the year. Perhaps things might not go well this particular year. Investors may instead experience back-to-back years of more than ten percent returns in both 2023 and 2024 but face losses in 2025. The sole guaranteed method to benefit from the market’s documented history of substantial long-term expansion is to remain committed through prosperous periods and downturns alike.