Navigating the New Year: Market Outlook and Tips for Savers in 2025

‘Tis the season for resolutions! While we at Wespath always think it’s a good time to think about your financial goals, it’s natural to be thinking about them more this time of year.

Maybe you’re planning a memorable family vacation, aiming to increase contributions to your retirement savings, or building up a college fund for your kids. No matter your plans, staying informed about economic and market conditions is key to aligning your strategies with both near- and long-term opportunities.

The economy and markets delivered a largely positive performance in 2024, but as we step further into a new year, there are uncertainties to consider. With that in mind, let’s explore the latest market trends and identify a few practical strategies to help you stay on course toward your financial goals this year.

What’s Going on in the Markets Right Now?

The S&P 500 Index of U.S. stocks returned 24.8% in 2024, while the Bloomberg U.S. Aggregate Bond Index gained 1.2% on the year. At the time of this writing, estimates are calling for U.S. gross domestic product (GDP) growth of approximately 2.7% for 2024. Many economists and Wall Street analysts have been calling for a recession for several years now, but the economy has proved quite resilient!

As we can see, forecasting is a difficult task. And while we don’t have a crystal ball to predict what lies ahead, we may still consider current market and economic indicators and how investors have acted in comparable situations in the past.

One thing to look at is the actions of the U.S. Federal Reserve (Fed). The Fed aggressively raised interest rates in 2022 and 2023 to combat inflation. In 2024, thanks to cooling inflation, the Fed started lowering interest rates. However, at its December meeting, the Fed signaled fewer rate cuts in 2025 than were previously anticipated.

Generally, when the Fed cuts rates, it is good news for the stock market; however, longer-term bond yields moved higher at the end of 2024 following the Fed’s meeting. The combination of higher bond yields and fewer Fed rate cuts might be challenging for certain companies with higher debt and lower credit ratings.

Other considerations in the new year relate to the change in federal government administration and related policies. For example, the new administration has indicated a desire to implement broader tariffs. While at this time there is just speculation, we know that investors will be watching policy decisions closely and considering, for example as it relates to tariffs, how these might impact international companies and large U.S. companies with international presences. Still, it’s important to remember that the economy is complicated, and that each policy issue can have many different, difficult-to-predict impacts.

Also in focus is the so-called “Magnificent 7” (Apple, Amazon, Google’s parent company Alphabet, Facebook’s parent company Meta, Tesla, Microsoft and Nvidia), which have driven much of the stock market’s gains over the past two years. These stocks gained more than 60% collectively in 2024. On the one hand, their financial strength could help them weather higher interest rates and borrowing costs, but on the other, they may be impacted by tariffs. This is another area to watch throughout the year.

How Should You Prepare for 2025?

For all the unique considerations we face in this new year, some things are always the same. Forecasting is difficult, and investment results in 2025 could turn out completely different than anyone expects. Core investment principles like diversification, or not putting all your eggs in one basket, remain prudent. And fundamental personal finance best practices can go a long way. These steps can help support you in achieving your financial goals, no matter the economy or market’s next move.

Consider starting, or adding to, an emergency savings fund

Emergency funds are savings set aside for unexpected life events like medical bills, unanticipated home repairs and unplanned unemployment.

“Buying a new set of tires for a car is not an emergency," Mark Cooke said in a video for Saving Grace, a money management program for clergy and congregations that aligns with Wesleyan values. Cooke is the president of a wealth management firm in Gainesville, Virginia, and a former associate pastor at churches in West Virginia and Virginia. "That is something you know is going to happen. An emergency is more like losing your job, something that is unexpected. And to have that (emergency fund) can really lower your anxiety.”

EY Financial Planning Services recommends setting aside enough money to cover at least three to six months of basic living expenses. Cooke stressed it can take time to build to that level. Instead of being discouraged by that fact, it is a reminder to be patient and give yourself grace. EY also notes that every little bit helps, so save what you can when you can for emergencies.

If you want to invest your emergency funds, it's prudent to take a conservative approach and consider a CD or money market account. When an unforeseen event arises and you need to tap into your emergency fund, you don't want to have less money than anticipated due to a market downturn.

Talk to an expert

If you aren't sure how you can afford an emergency fund or a family vacation, you can turn to an EY financial planner for help with things like budgeting and managing credit card debt. EY services are available at no additional cost¹. EY financial planners also can help with setting savings goals, managing investment decisions, making retirement distribution decisions, financing a college education, estate planning and more.

EY financial planners do not sell investment or insurance products, but instead are available to offer confidential, unbiased guidance without any sales pressure to all active participants and surviving spouses with an account balance in Wespath-administered plans. Terminated and retired participants with an account balance of at least $10,000 also are eligible to consult with EY.

To speak with an EY financial planner, just call 1-800-360-2539 on business days between 8:00 a.m. and 7:00 p.m., Central time. There are no forms to fill out and no enrollment steps to complete, no matter how much help you need. You also can visit EY Navigate to access webinars, educational content and much more.

To see just how much EY can help Wespath participants, check out last year's Dimensions story about an EY adviser who helped a New York pastor prepare for retirement.

¹ Costs for these services are included in Wespath's operating expenses that are paid for by the funds.

Once you make your plan, stick to it

Once you have set your investment goals and developed a plan to achieve them, congratulations are in order. Kudos!

Now a new challenge awaits. The market will inevitably have its ups and downs as you pursue your goals, and when that happens it is important not to overreact. It is easy for investors to second-guess themselves during periods of short-term volatility and make large shifts in their investment portfolio, but it’s often helpful to ignore those temptations and stay the course.