
The last two years have been just about as good as stock investors could have hoped for.
Heading into 2025, the S&P 500 — a measure of the broad U.S. stock market — has submitted gains of about 26% and 25% in the previous two years, following an 18% downdraft in 2022. So what are the odds of a third big year?
"Historically, the likelihood is about 1 in 5," says Sam Stovall, chief investment strategist at CFRA.
Stovall would be the first to tell you that market history is no guarantee of future results. But the best market prognosticators study historical patterns for a reason. "I'm a big believer in history," Stovall says. "It doesn't necessarily repeat, but it does tend to at least rhyme."
All in all, Stovall expects the market to deliver solid, if unspectacular, gains this year, reflecting a strong market that will likely have some ups and downs, especially as investors digest the economic ramifications of a new administration in Washington.
"I call myself a bull with a lowercase b," Stovall says.
Here's what he and other market experts say to expect in 2025.
Money Report
A bull market that's 'alive and well'
While it's important to know how the market has behaved over historical cycles, analyzing the current conditions for stocks and the economy matter, too. And crucially, many of the factors that have led to the strong bull run in stocks of late remain intact, says Ryan Detrick, chief market strategist at the Carson Group.
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"What got us here? It is a strong consumer. It is strong incomes. It is strong wages. It's an economy that is still growing nicely," he says.
Detrick and his colleagues expect inflation to continue to cool, which should allow the Federal Reserve to cut interest rates — a boon to a few areas in the market that have struggled in recent years.
"If inflation continues to improve a little bit and the economy stays strong, there's no need to have interest rates where they are right now," he says. "We think more cuts are likely, and that may unlock some animal spirits that might help small businesses and the housing market."
All in all: "We think this bull is alive and well," Detrick says.
While a strong economy is a positive backdrop for stocks, their underlying fundamentals are what tend to drive prices. The big one of those — earnings outlooks for companies in the S&P 500 — looks like a green flag, too.
"Earnings expectations for 2025 are strong — some might say too strong — but even if revised down slightly, companies still look to be in better shape than in 2024," Liz Thomas, head of investment strategy at SoFi, wrote in a recent note. Overall, Wall Street estimates large U.S. companies will boost their earnings by 14.4% in 2025, following a 9.9% gain in 2024, according to data from SoFi and LSEG.
Prepare for some volatility
Both Thomas and Detrick see gains in the broad stock market this year, though more muted than the past two years' results. But even if you're bullish that stocks can continue, it's important to remember that things typically don't go smoothly up and to the right.
Last year was an unusually placid one for stocks, with the biggest pullback of the year coming in at just 8.5% — well below the market's average intra-year drawdown of 13%.
"We're telling clients to plan for a double-digit correction at some point during the year," says Detrick. "Most years have a double-digit peak-to-trough correction."
That doesn't mean you should make any wholesale changes to your portfolio, market experts say. It just means to stick to your plan if and when the going gets tough.
Stovall says the first year of presidential cycles feature an average stock market decline of 17%. "So somebody might say, 'Well, wait a minute, shouldn't I then just bail out of the market altogether?'" he says. "And my answer is, well, not really."
That's because the average time that it takes for the market to recover its loss after a decline of 10% to 20% is four months, Stovall points out. "So you're better off just being aware of the potential volatility and not reacting to it."
One move worth making now is ensuring you're adequately diversified. By spreading your bets across a variety of asset classes, you ensure that your portfolio's performance isn't tied to the fortunes of one particular investment.
If outperformance from a small group of stocks has them occupying an outsize portion of your portfolio, for instance, now may be a good time to get back to your target allocations, says Detrick.
"You may have had a great couple years with some of these tech stocks, but let's remember you don't always want to chase the shiny object," he says. "It's important to rebalance, and you might consider taking some of those profits and investing in some of the under-loved areas of the market that are cheap right now."
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