Will the stock market rally or crash in 2025? I’m prepared for anything!

Less than a month ago, fears of a recession were sending ripples through global stock markets. But after a minor dip earlier this month, prices bounced back stronger than ever. 

Now, major banks and brokers think a recession in 2024 is unlikely. So does that mean we could see a fresh rally emerge in 2025? Anything is possible!

So I’ve added two new shares to my portfolio: one defensive, and one that could benefit from a market recovery.

The safe(r) option

I may be feeling positive about the direction of global markets but I’m no idiot. A lot is going on in the world right now and much of it could affect economic stability. With conflicts raging in Europe and the Middle East and a potentially disruptive US election coming up, who knows what could happen?

So I opted to redirect some of my capital into the safe and warm embrace of a well-established investment trust.

Scottish Mortgage Investment Trust (LSE: SMT) has been a favourite of UK investors for decades. I’ve been planning to buy the shares for some time and the recent market uncertainty prompted me to finally dive in. I got jitters about my US tech stock allocation and decided a diversified investment trust would better safeguard my money.

Ironically, Scottish Mortgage holds some of the US stocks I sold, such as Nvidia and Meta. But its vast portfolio of 37 assets spans several regions and industries. This usually helps to reduce the risk of loss from the failure of one stock.

The trust went through a highly volatile period in the years after Covid. While many global markets were crashing, its price skyrocketed 150%. But after peaking in late 2021, it crashed back down to nearly pre-Covid levels. The past year has been more stable, with the price growing 34%. 

Investment trusts don’t usually suffer that kind of volatility, so I’m cautious to allocate too much to it. This could be because the trust uses leverage, putting it at higher risk when markets decline. It’s also heavily weighted towards growth stocks in the tech sector, which can be volatile.

Still, I like the diversified nature of its portfolio and am interested to see how it fares in the coming years. With a price that’s up 1,400% in the past 20 years, I feel optimistic enough that its managers know what they’re doing.

Building the UK’s future

Taylor Wimpey (LSE: TW) is a stock I chose to buy for an entirely different reason. I believe the housebuilding company stands to benefit a lot from the new Labour government. With policies aimed at fast-tracking planning permission, Taylor Wimpey’s extensive landbank could soon enjoy a renewed bout of development.

I hope I’m right — because recent performance has been weak. In its first-half earnings results released earlier this month, revenue and income were down 7.3% and 59% respectively. Earnings per share (EPS) now stands at 2.1p, down from 5p this time last year.

But it seems I’m not the only one optimistic about the company’s future. With the shares up 12% since Labour took power, it’s recovered most of the losses incurred during 2022. That gives me more confidence that it can maintain its 5.8% dividend yield — another prominent factor that attracted me to the stock.