Is the stock market going to crash in 2025?

The short answer I, and any credible market-watcher, will give is: I don’t know. Markets are by their nature unpredictable. A few supposed seers correctly guessed the last bear market, and others will probably foresee the next one. The fact is that someone, somewhere, is always predicting a crash. Like broken clocks, they will be right every now and then.

That said, I can share some certitudes that come from covering the markets for more than three decades.

What we do know about the stock market

The first thing to keep in mind is that major market downturns don’t necessarily manifest over a matter of days. Sometimes stock prices just start slipping and keep going. During the dot-com bust, the Nasdaq Composite Index took 31 months to lose 78% of its value, between March 2000 and October 2002, with the odd bear-market rally in between.

Second, what happens in the markets seldom coincides with what’s happening in the economy. “Black Monday” in 1987 took place more than three years from the nearest recession. Markets are forward-looking, and they can fall simply because their earlier expectations were too optimistic. Will there be a recession in Canada this year? Quite possibly, but that will have little bearing on your stocks’ performance.

Third, the best days to be in the market are often right around the bottom. If you’re not invested at that point, you’ll miss them. And it’ll cost you: in 2022—the last lousy year in the markets—TD Asset Management conducted an exercise showing that $10,000 invested in the S&P/TSX Composite on December 31, 1991, would have grown to $60,423 after 30 years. But if you failed to participate in the best 1% of trading sessions over that period, you’d have lost money and be left with just $3,747 on December 31, 2021.

In other words, even if you could predict a crash in advance, you’d need to be right a second time, knowing exactly when to get back into the market, to really capitalize.

The four horsemen of the financial apocalypse

Major market meltdowns are almost always accompanied by four phenomena:

1. Overvaluation
2. Imbalance
3. Shock
4. Loss of confindence

Here’s how they work together.

• Overvaluation in the preceding period. We’re not talking about certain frothy subsectors (think cannabis stocks in 2017) but rather market-wide high multiples, as measured by the CAPE ratio and other tools. (CAPE stands for cyclically adjusted price-to-earnings; this ratio divides a stock’s price by the 10-year average of the company’s earnings, adjusted for inflation, to forecast future earnings.)
• An underlying imbalance in the economy that leads to a misallocation of capital—for example, to build homes where they aren’t needed or to fund internet-based businesses that will almost all fail. Unfortunately, these imbalances are seldom recognized by more than a few people until it’s too late. (A rewatch of 2015’s The Big Short is instructive here.)
• A shock such as a sudden rise in energy prices, a currency devaluation, the collapse of a too-big-to-fail institution like Lehman Brothers, or a “black swan” event, like COVID-19. This triggers a change in market sentiment and causes lenders to tighten credit.
• A widespread loss of confidence from investors, who pull their money out of the markets, that exacerbates the downward momentum.

Will the stock market crash in 2025?

Turning to 2025, one could argue that stocks are overvalued and that we’ve seen a shock in the form of very high tariffs imposed or, at least, threatened by the United States on its major trading partners. But no pervasive imbalance has been laid bare, and investors themselves have been surprisingly resilient. It reminds me of 1998, when the hedge fund Long-Term Capital Management collapsed, or 2006, with the unravelling of Amaranth Advisors on misplaced natural-gas bets. Though markets may indeed have been overvalued in those years, the damage was contained and they plodded on.

Most of the time, stock markets climb this “wall of worry,” as traders put it. Despite a litany of risks, you find that your money invested in the market has grown by the end of the year. Maybe it won’t happen this year. Maybe investors will have to content themselves with consecutive double-digit gains in 2023 and 2024 and take a loss on 2025. The only sure way to capture the market’s proven record of long-term growth is to stay invested in good times and bad.

Read more about investing:

• The MoneySense ETF Screener
• How women can start investing
• How to allocate a RRIF for secure income in retirement
• What is the price of gold in Canada? And more about gold investing
• New active U.S. ETFs for Canadian investors—are these funds worth your money?

About Michael McCullough

Michael is a financial writer and editor in Duncan, B.C. He’s a former managing editor of Canadian Business and editorial director of Canada Wide Media. He also writes for The Globe and Mail and BCBusiness.

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