Why the stock market poses a big risk for 2025

Millions of Americans have watched their net worth spike since the pandemic, powered by meteoric gains in the stock market.

Millions of Americans have watched their net worth spike since the pandemic, powered by meteoric gains in the stock market. Wall Street’s blockbuster returns — the strongest back-to-back years since the boomy Clinton years of the late 1990s — have boosted confidence and encouraged consumers to keep spending at will. Now, there are growing worries in some corners that things may be getting out of hand, that the price tag on some stocks has become untethered from reality. The fear is that this could set the stage for a market drop so painful that it endangers the overall economy. “I’m very concerned because the stock market is pricing in nothing but blue skies and sunshine forever,” Mark Zandi, chief economist at Moody’s Analytics, told CNN in a phone interview. “The market is very richly valued, bordering on frothy,” he said, referring to unsustainably high valuations. The Nasdaq, powered by the artificial intelligence boom and the Magnificent Seven group of tech stocks, surged 29% last year, building on the eye-popping advance of 43% in 2023. The S&P 500 gained a staggering $10 trillion in value last year, according to S&P Dow Jones Indices. Markets have retreated a bit in recent weeks, but Zandi is concerned about a far steeper drop, perhaps exceeding 20%. The Moody’s economist said he hasn’t been this worried about overvalued markets since the late 1990s during the inflating of the dot-com bubble.