2024 was a perfect year for foreign investors, especially those investing in the U.S. stock market. The annual growth rates of the Nasdaq Composite Index and the S&P 500 Index recorded around 30%. In contrast, the KOSPI Index and the KOSDAQ Index ended down 9.9% and 21.7%, respectively, compared to the start of the year. Nowadays, nine out of ten individual stock investors ask the same question: “Will the U.S. stock market continue its upward trend in 2025?” Optimism prevails, but a hint of pessimism is also emerging. We heard opinions from both sides predicting a bull and bear market.[Editor's note]
In 2024, many domestic investors were physically in Korea but were busy sending their minds to the U.S. The major tech stocks, led by Nvidia, created a solid market that quickly recovered even after shaking the New York market briefly. The clearly visible revenue from U.S. investments starkly contrasted with the Korean stock market, which struggled throughout the year. Reflecting the interests of foreign investors, asset management companies rushed to introduce exchange-traded funds (ETFs) investing in the U.S. market.
There is no disagreement that the U.S. stock market will be the most reliable market in 2025. However, recently, the U.S. Central Bank (Federal Reserve) has hinted at moderating the pace of interest rate cuts, causing a slight rise in pessimism. The rapid decline in U.S. consumer sentiment at the end of last year, which had seemed to improve immediately after the presidential election in November, also fueled concerns about a potential bubble burst in the New York stock market.
◇ “Will the S&P 500 index reach 6,630? … It may plummet to 4,197.”
BCA Research, one of the world’s oldest independent research firms in Canada, released a report titled “Dispatches From The Future” on Dec. 12 (local time). BCA assumed the publication date of the report to be Jan. 2, 2026, and adopted a unique narrative style reflecting on 2025. BCA has maintained a somewhat pessimistic view of the U.S. economy and has amplified its pessimism in this report.
First, let’s look back at the capital markets. BCA noted that the stock market showed weakness in the first quarter of 2025 due to the trade war triggered by the tariffs imposed by the Donald Trump administration. In the second quarter, the market was shaken again due to a fiscal crisis. The recovery of the index is expected to occur after the third quarter. BCA stated that by the end of 2025, the Standard & Poor's (S&P) 500 index would only be at 4,452 points. It had even plummeted to 4,197 points by early November.
This figure is significantly below the estimates from major investment banks such as Morgan Stanley, Goldman Sachs, and JP Morgan, which predicted 6,500 points. Wall Street's average forecast for the S&P 500 in 2025 is 6,630 points. However, BCA noted that “the expected earnings per share (EPS) for S&P 500 companies in 2025 is $240, similar to the 2024 figure,” adding that “the excitement over artificial intelligence stocks has waned.” BCA also noted that “U.S. stocks performed better than those of other countries exposed to trade.”
Regarding bonds, BCA reported that after a spike in Treasury yields in the spring of 2025, President Trump abandoned most of the promised tax cuts. Additionally, the yield on 10-year U.S. Treasury bonds fell to 3.25% by the end of 2025, along with a sharp increase in default rates and credit spreads.
The basis of BCA’s confident pessimism lies in its negative assessment of the overall U.S. economy. In this report, BCA stated that the National Bureau of Economic Research (NBER) officially recognized the recession in May 2025. Job postings in the second half of 2024 approached levels before the pandemic (job vacancy rate of 4.6%), close to the 4.5% figure mentioned by Federal Reserve Governor Christopher Waller as the inflection point of the Beveridge curve. Additionally, the number of permanent unemployed in November 2024 had increased by 48% compared to before the pandemic, with the median duration of unemployment rising to 10.5 weeks, accelerating the recession.
BCA remarked that the excess savings of U.S. consumers have evaporated, significantly impacting the lowest income tiers amid employment instability. While the growth rate of credit card liabilities has slowed in 2025, the delinquency rate has risen, making banks more cautious about extending home equity lines of credit. Additionally, while mortgage rates are similar to those in the 1990s, real home prices have skyrocketed to more than double compared to that time.
◇ Warren Buffett continues to dispose of stocks amid plummeting U.S. consumer sentiment.
Recently, the number of experts and indicators showing concerns about a possible collapse of the U.S. stock market, similar to BCA, has significantly increased. For instance, the 12-month forward price-to-earnings ratio (PER) of the S&P 500 index has now exceeded 22 times, far surpassing the 30-year average of 16.8 times. A lower PER signifies that stocks are undervalued, but the S&P 500, in contrast, is overvalued.
According to DB Financial Investment, a PER of 22 times is the second highest level in the past 40 years of the U.S. stock market. The highest was just before the burst of the IT (Information Technology) bubble in the early 2000s when the S&P 500 PER was 25 times. The PER at the time of the pandemic in 2020, when the Federal Reserve was implementing an unlimited quantitative easing policy, was also at 22 times, as it is now.
The recent unexpected sharp drop in U.S. consumer confidence also bolsters pessimism. According to the Conference Board (CB) on Nov. 23 (local time), the U.S. consumer confidence index for December 2024 recorded 104.7, a drop of 8.1 points compared to the previous month (112.8). This indicates that the consumer sentiment, which had shown improvement immediately after the November presidential election, deteriorated rapidly by the end of the year. The expectations index for December also plummeted 12.6 points to 81.1 compared to the previous month. The expectations index shows short-term outlooks on income, business, and employment. A reading below 80 is interpreted as a signal that a recession may occur within a year.
The Federal Reserve's recent adjustment of its prediction for interest rate cuts in 2025, from four times to two, has also been identified as a risk factor. Furthermore, among the 12 members of the Federal Open Market Committee (FOMC), four will change this year, with two of the newly voting members classified as hawkish (favoring tightening measures), increasing concerns about the Federal Reserve's speed moderation. The other two are classified as a dove (favoring easing) and neutral.
Perhaps anticipating this situation, Warren Buffett’s Berkshire Hathaway revealed that it held $325 billion (approximately 478.4 trillion won) in cash during the third quarter earnings report of 2024, a record high. Furthermore, Berkshire Hathaway has recently been continuously selling stocks and buying bonds. The Japanese newspaper Nihon Keizai Shimbun remarked that “Buffett pivoting to bonds for the first time in 22 years is a clear warning about U.S. stocks.”
The market is abuzz with reminders not to forget that the strongest stock market booms have historically led to the strongest crashes. Benjamin Bowler, an analyst at Bank of America (BofA), stated, “The two largest booms in history ended with the 1929 stock market crash and Black Monday in 1987,” adding, “The S&P 500 index has already exceeded a revenue growth of 30%, and its index value has entered an exaggerated range. Historically, it is too late to avoid a crash.”