As the excitement of the 2025 New Year ends, expect the U.S. stock market to weaken. It carries an unbalanced enthusiasm from 2024, so 2025 could be a period of adjustment.

Eight issues have begun to undermine the stock market’s fragile support:

First of allrising stock markets have outpaced corporate profits and other fundamentals (see chart at end of article)

Secondthe bond market is staging a capital market breakdown following the Federal Reserve’s dubious attempt to cut all interest rates again.

ThirdThe flame of inflation is not out, so watch for the seasonal revival of higher prices in the first quarter. Also don’t forget to add any price increases linked to tariffs.

FourthHomebuilder stocks began to fall. Overly optimistic managements are now faced with unusually large inventories of unsold homes.

FifthThe U.S. government’s unbalanced finances need to be fixed, but the House’s recent problems with the debt ceiling show that achieving consensus will be difficult.

Sixthwars. In the United States, foreign wars can be upsetting, but not distressing until something close to them happens. When this happens, people become worried or afraid, causing their optimism to evaporate.

Seventhclimate change. The side effects are visible, what now? Who will pay for repairs, reconstruction, relief and resettlement? What preventive measures will be taken, who decides and executes them?

Eighthhubris (excessive pride or self-confidence). President Trump exudes this characteristic, meaning his grand attempts at disruption or reconstruction will likely result in unwanted and destructive counterreactions – the effect of the law of “unintended consequences.”

The bottom line: It’s time to do more than just adjust to optimism.

The problems facing the United States are fundamental, far beyond those the stock market typically faces. However, the behavior of the stock market ultimately reflects these fundamental problems and affects the temperament of investors. Therefore, the stock market’s happy ending in 2024 could result in a serious downward adjustment starting in early 2025.

As mentioned in the “First” section, here is the almost 5-year Covid period chart that shows two major fundamental problems: earnings lag and inflation-adjusted reality. Both have real downsides that support a tough stock outlook.