My ISA is ready for a 2025 stock market correction

Zaven Boyrazian reveals where he’s looking in an upcoming potential stock market correction in 2025 to try and generate market-beating returns.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Bronze bull and bear figurines

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

A new stock market ‘correction’ could be on its way next year, but this time, shares could be set to surge rather than collapse. Don’t forget corrections can occur in either direction. And even after the markets enjoyed a double-digit rally in 2024 so far, that performance could be just the tip of the iceberg. Here’s why.

All eyes are on the Bank of England

Last month, the Bank of England (BoE) introduced the first interest rate cut since inflation started going wild a few years ago. That’s because economic conditions have changed over the first six months of the year. And since inflation has continued to stay relatively cool, another rate cut announcement is expected at the next meeting later this month (19 September).

That’s terrific news for investors. After all, lower interest rates increase access to capital, enabling businesses to grow and share prices to climb. Yet lately a common theme appears to be emerging among some FTSE industries.

Sales and earnings at many stock market companies have actually started to slow down. Some may even miss full-year guidance despite the improved economic landscape. What’s going on?

The International Monetary Fund (IMF) has recommended UK interest rates fall to 3.5% by the end of 2025. Other analysts have been a bit more bullish, suggesting rates be cut even faster. Regardless, the trend is clear – barring any unforeseen catastrophe, rates are going down. And businesses, as well as consumers, have taken notice.

With debt likely to become cheaper next year, projects are being delayed. As such, growth from industry leaders like Howden Joinery (LSE:HWDN) has slowed to a crawl in 2024.

A buying opportunity?

Howden is not the only company caught in this situation. But let’s use it as an example and zoom in. The business specialises in fitted kitchens and, more recently, fitted bedrooms. And it works directly with tradespeople to supply all the materials, designs, and instructions for such projects.

Home renovation isn’t cheap. Neither is new home construction, which Howden has some exposure to. As such, households and homebuilders have equally hit pause on a lot of projects, making top-line expansion rather challenging. Subsequently, in its latest earnings report, revenue only expanded by just over 4% versus its double-digit historical average.

But once interest rates have fallen further, this may quickly reverse, re-sparking growth not just in the property market but in electronics, chemicals, and industrial sectors, among others.

In other words, now might be a terrific time to consider some shares while they’re still cheap. That’s what I’m doing.

What’s the catch?

While investors can act irrationally, the prospect of rate cuts is hardly a secret. It’s been in the headlines throughout 2024. And as a consequence, there’s a possibility that any 2025 growth burst could already be priced into valuations.

If that’s the case, investors may end up reaping returns smaller than expected, especially if the BoE takes longer to cut rates than what the IMF has suggested. But equally, if rates are cut faster without inflation making a comeback, the surprise could send shares flying.

The short-term is notoriously hard to predict, making diversification paramount for keeping risk in check. Nevertheless, as economic conditions continue to improve, 2025 may be a terrific year for the stock market. At least, that’s what I think.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zaven Boyrazian has positions in Howden Joinery Group Plc. The Motley Fool UK has recommended Howden Joinery Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »