“Markets in 2025: What remains of the forecasts”

The beginning of the year is forecast time, followed by the review at the end of the year. Ali Masarwah, fund analyst and managing director of the consulting firm envestor, presented five market theories here in January 2025. Today, our columnist takes stock of which ones came true and which ones did not.

15 December 2025. FRANKFURT (envestor). First, I would like to briefly address the question of whether short-term forecasts are simply unreliable given the general uncertainty about the direction of the markets. They are indeed unreliable when it comes to point forecasts. In that case, they are more likely to be the subject of barroom bets. I would venture to say that no one correctly predicted the DAX level of 24,186.49 points in January 2025. However, forecasts are legitimate and important when they are based on sound market scenarios and well-thought-out theories.

No portfolio is created without forecasts. Each of our investment decisions is underpinned by assumptions. It is unfavorable when these are made unconsciously. Then investors naively expose themselves to the whims of the markets. For example, those who fill their portfolios with only one ETF on the MSCI World are not only betting one-sidedly on US stocks, but also on the US tech platforms' quest for the holy grail of Gen AI being the only correct path toward human progress. China and – involuntarily – Europe are showing that the path to a successful future can also lie in promoting diversified technological development. Incremental progress in the sectors of robotics, the digitization of administrative processes, the development of electric cars, smart cities, and alternative energies can ultimately yield more than a one-sided bet on the AI breakthrough, which we do not know if it will even happen.

In my opinion, explicit investment theses are important – in the sense of self-determined and self-reflective investing.

So anyone expecting point forecasts from our review will be disappointed by the results of our forecasts, which we presented in our guest article in January 2025: We put forward theses and forecasts on important factors influencing the markets, but did not aim for pinpoint accuracy.

Thesis 1: US tech and US banks as winners – currency pitfalls included

At the beginning of the year, the first thesis was that US tech stocks were hard to beat and that US banks could also benefit from a wave of deregulation in the US. The two-part thesis tended to be correct: both segments performed well on the US stock market. The Nasdaq 100, a haven for tech platforms, rose by around 23 percent, while the MSCI USA Banks index even gained a good 31 percent. There were several setbacks in between, but these did not fundamentally damage the upward trend. The catch: from the perspective of euro investors, the dollar's slump of around 14 percent against the euro put many things into perspective: the Nasdaq 100 yielded us only a good 8 percent, and US banks around 15.5 percent. That is respectable, but a far cry from the brilliant dollar performance.

Thesis 2: Europe's comeback against US stocks

The second thesis challenged the widespread assumption that US stocks would always outperform European markets. Fifteen years of underperformance could leave room for a counter-movement, we wrote in January. Regional diversification did indeed prove to be a trump card for stocks in 2025. Most European markets were well ahead of the US from a euro perspective: the MSCI Italy rose by a good 33 percent by December 11, the DAX by 22 percent, and the FTSE 100 by 23 percent. This contrasted with a gain of only 4.6 percent in the S&P 500 from the perspective of euro investors.

Thesis 3: Cryptocurrencies are worth a look

Here, we clearly succumbed to herd mentality – contrary to our own convictions, we argued that cryptocurrencies, in combination with AI, could “open up new investment horizons.” In the long term, this thesis could prove correct, but the reality of performance in 2025 was sobering. Bitcoin was trading at around $94,400 at the beginning of the year, and by mid-December the price was around $90,000. In euro terms, the loss was almost double-digit due to the weakness of the dollar. This does not naturally scare true crypto hodlers, but it does scare Bitcoin rookies who have dipped their toes into crypto via ETFs and ETPs. The Bitcoin crash from $126,000 to as low as $85,000 in the fall is likely to have deterred many “crypto tourists.”

Thesis 4: Interest-bearing investments ahead of a good phase

The fourth thesis was that conditions for interest-bearing investments would remain favorable for the foreseeable future. This assessment was not fundamentally wrong, but it was too sweeping. 2025 was a weak year for traditional euro government bonds: The German REXP bond index recorded a gain of only around 1 percent by December 11, with the broad Bloomberg Euro Aggregate index barely above that. The situation was significantly better in segments such as emerging market bonds and US Treasuries, but only if the currency risk was hedged – not only the dollar, but also many emerging market currencies weakened against the euro. This left its mark on unhedged portfolios. However, the fact that long-term yields did not fall more significantly despite key interest rate cuts means that bonds still have satisfactory performance prospects. But more on that in our 2026 forecast.

Thesis 5: Caution with government bonds, focus on credit spreads

In the fifth thesis, we warned against focusing too heavily on government bonds and instead emphasized the importance of spread markets. This thesis proved correct. Although government bond markets remained stable overall in 2025, the opportunity costs were high. Despite high valuations, credit risks paid off, for example in corporate bonds and structured bonds (European CLOs, consumer credit portfolios). Insurance-linked securities, especially catastrophe bonds, deserve special mention, with returns of just under 10 percent on a euro basis.