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5 big investing ideas for 2025

Here's where Fidelity's investing pros see opportunities for the coming year.

Key takeaways

  • Small- and mid-cap stocks have already gotten a boost from the market's broadening.
  • Fidelity's pros see tailwinds for financial and consumer discretionary stocks.
  • Investors may also find opportunities in convertible bonds and bank bonds.

As 2024 nears its end, the stock market is high—and so is the economic uncertainty that has been with us for so long. But despite potential risks, Fidelity’s investment pros have found plenty of smart moves for investors to consider for 2025.

Here are 5 of their top investing ideas for the coming year. And be sure to check out our full 2025 investing outlook for more ideas from our pros.

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1. Small- and mid-cap stocks

One of the big stories in 2024 was the market broadening. For nearly 2 years, market leadership had been dominated by the so-called “Magnificent 7,” a group of mega-cap growth stocks. But in the second half of 2024, the market finally started rewarding other types of stocks, including small- and mid-caps, which had lagged significantly in recent years.

Even Will Danoff, manager of the Fidelity® Contrafund® () whose top holdings include many of the “Magnificent 7,” has recently been intensifying his efforts to find high-growth small- and mid-caps. “Mid- and small-cap companies can often grow faster and longer than their big-cap brethren simply because their starting point is so much smaller,” says Danoff.

These companies may have valuation and earnings tailwinds, to boot. Denise Chisholm, Fidelity’s director of quantitative market strategy, notes that mid-cap stocks in particular have looked cheap on several measures, which has historically been a strong indicator of subsequent outperformance, and have also seen earnings accelerating.

Graphic shows that small and mid cap stocks have outperformed the S&P 500 over the past 3 months.
Past performance is no guarantee of future results. Source: FactSet, through 12/10/2024.

2. Financial stocks

The often-sleepy financial sector suddenly burst to life in a post-election surge, positioning financials to be one of the top-performing sectors for 2024. Chisholm says that despite that surge the sector still looks undervalued—one of the main reasons it’s one of her top picks for the new year. “The sector’s valuations have remained in the bottom quartile of its historical range,” says Chisholm, a dynamic that historically has preceded outperformance.

Bar chart illustrates that when financial stocks are cheapest relative to PE, they have historically seen the highest next-12-months relative performance.
Past performance is no guarantee of future results. Sources: Haver Analytics, FactSet, Fidelity Investments, as of 9/30/2024. Data analyzed monthly since January 1962.

3. Consumer discretionary stocks

Chisholm’s other top sector pick for the year ahead is consumer discretionary. This sector consists of companies that mainly do well when the American consumer is doing well: Think new cars, online shopping, hotels, and luxury goods. She notes that in the last year, the sector’s valuations relative to the market declined significantly (based on price to free cash flow). Chisholm also notes that in the same period, the sector’s earnings grew faster than the market. In isolation, each of those dynamics might be a bullish indicator, but in combination they could be an even stronger signal.

“The combination of low valuations and market-beating earnings growth has been rare and powerful for the sector,” Chisholm says.

Bar chart shows that consumer discretionary stocks have historically performed best over the next 12 months when they are cheapest based on free cash flow yield.
Past performance is no guarantee of future results. Free cash flow yield compares the free cash flow per share a company is expected to earn against its market value per share. Sources: Haver Analytics, FactSet, Fidelity Investments, as of 9/30/2024. Data analyzed monthly since March 1980.

4. Bank bonds

Investment-grade bonds issued by large, globally important banks in the US and Europe may offer attractive opportunities in 2025. Fidelity® Corporate Bond Fund () managers Jay Small and Ben Tarlow are focused on banks with strong capital and liquidity positions, whose bonds appear attractively valued against solid fundamentals. Some examples include Switzerland-based UBS, which is one of the top 5 issuers held by the fund as of October 31, as well as Paris-based BPCE SA, and Société Générale.

For specific fund information, including full holdings, please click on the fund trading symbol above.

Graphic illustrates the differences between a traditional bond and a convertible bond. Both pay interest at regular intervals during the bond’s lifetime. At maturity, a traditional bond returns your initial investment. A convertible bond allows you to choose between return of your initial investment and converting the bonds to shares of stock.

5. Convertible bonds

Convertible bonds are securities that pay interest like other bonds, but which also may be converted to shares of the issuing company’s stock. Adam Kramer manages Fidelity® Multi-Asset Income Fund () and believes there might be especially attractive opportunities in 2025 in the convertible bonds that an increasing number of companies are issuing to raise capital to fund their growth and operations. "Convertible bonds are unique because they pay interest like other bonds but their prices also move with the issuing company’s stock," he says.

Chart shows that new issues of convertible bonds have been rising since hitting a low in 2022.
Source: Bank of America Global Research, Fidelity Investments

Kramer believes that as 2025 approaches, convertibles not only offer attractive yields, but they also can enjoy future potential gains in the stock market that many investors are expecting in the next few years if deregulation and tax cuts help boost US stock prices.

Small though it may be now, the convertible market is also growing. “I wouldn't be surprised if convertible bonds are going to be a bigger part of the market in the next few years,” says Kramer. “I think now we're entering a golden age of convertible bonds. We're starting to see some really interesting deals come to the market.”

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Past performance is no guarantee of future results. Consumer discretionary sector performance is represented by the S&P Consumer Discretionary Select Sector index. Financials performance is represented by the S&P 500 Financials index. Health care performance is represented by the S&P 500 Health Care index. Consumer staples performance is represented by the S&P 500 Consumer Staples index. Source: S&P Dow Jones Indices, a division of S&P Global.

Investing involves risk, including risk of loss.

Past performance is no guarantee of future results.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation, and evaluation of the security. Fidelity is not recommending or endorsing this investment by making it available to its customers.

 References to specific securities or investment themes are for illustrative purposes only and should not be construed as recommendations or investment advice. This information must not be relied upon in making any investment decision. Fidelity cannot be held responsible for any type of loss incurred by applying any of the information presented. These views must not be relied upon as an indication of trading intent of any Fidelity fund or Fidelity advisor. Investment decisions should be based on an individual's own goals, time horizon, and tolerance for risk. This piece may contain assumptions that are "forward-looking statements," which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments.

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 The securities of smaller, less well-known companies can be more volatile than those of larger companies. S&P MidCap 400 Index is a market capitalization–weighted index of 400 mid cap stocks of US companies chosen for market size, liquidity, and industry group representation. The S&P SmallCap 600 is designed to measure the performance of the 600 small-sized companies in the U.S., reflecting this market segment's distinctive risk and return characteristics. Measuring a segment of the market that is typically known for less liquidity and potentially less financial stability than large caps, the index was constructed to be an efficient benchmark composed of small-cap companies that meet investability and financial viability criteria. Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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