The Stock Market is Headed Even Higher Next Year
Pessimists sound smart while optimists make money…
I’m a creature of habit. The first thing I do every morning is go downstairs and turn on the coffee machine. Then I spend the next hour pouring over market data and reading about what may or may not have happened overnight. Then, after sending off my morning note, I make my first latte, then head back into my office. For the rest of the day, I spend my time pouring over websites and publications, searching for economic data or policymakers’ speeches.
As part of the process, I’m easily sidetracked by lots of articles that were never part of my search. So, I wind up spending more time than intended, because I read about other market-moving subjects to satisfy my curiosity. And each time, I find that the negativity of the financial media never ceases to amaze me.
No matter what website I’m surfing, it always has the most negative story front and center. For instance, The Wall Street Journal ran a piece the other morning focused on anger over inflation. Forget the fact that price growth has cooled immensely in the last 24 months. And Bloomberg’s lead story is always focused on what’s going to hurt the market, not what’s going to help it.
Yet, no matter what era we’re living through, a few things never seem to change… ?there will be turmoil and geopolitical tensions… a new political regime will saber rattle, looking to challenge America… and Republicans and Democrats will take each other to task.
But one thing that always seems to shrug it all off, no matter what the event, is the stock market. Consequently, I find it helpful to cut out the noise and just look at the raw numbers for a historical performance signal and perspective. And based on the data I see, even more gains lie ahead for the S&P 500 Index in 2025.
But don’t take my word for it, let’s look at what the data’s telling us…
Year to date, the S&P 500 is up 21.8%. So, I wanted to look back at the S&P 500’s total return following an annual gain of 20% or more. Since 1927, there have been 26 years when we’ve seen these types of surges. Here are the results…
In the table above (and the one that follows), I ran the results over the following three-, six-, 12-, and 24-month time horizons. The average return shows us the typical outcome for the index during those periods while the success rate tells us the likelihood of experiencing a gain.
I didn’t detail each year and its result because it may have been a bit overwhelming. But when we compare these numbers to the S&P 500 lifetime average gain of 9.5%, it tells us we should expect typical returns next year and a positive outcome.
However, I didn’t want to limit my search. I wanted to drill down on another important variable in this environment. In 2023, the S&P 500 had a total return of 26.3%. That means we’re on track for a second consecutive year of 20%+ gains. So, I wanted to see what happens when similar events have occurred in the past. Take a look…
As you can tell from the table above, such an outcome has happened only five other times since 1927. Based on the results, we should expect stocks to keep rallying over the next 24 months. According to our table, there’s a high likelihood we’ll experience an outsized return by the end of the second quarter of 2025. But then, we can hit the snooze button for the rest of the year. However, by the end of 2026, the odds are in our favor of stocks rallying more than 23%.
Look, there’s always a boogeyman or pitfall waiting for you around the next corner. Trust me, I’ve seen and heard predictions for many yet so few of them have materialized. They tend to be more bark than bite in order to grab your attention. But, if you get sucked in, and try to spend all of your time avoiding those coming calamities and the ensuing collapse, you’ll wind up making a bigger mistake.
The stock market doesn’t go up in straight lines. It zigs and zags along the way. If you’re always waiting for the next disaster and never invest, it’s impossible to have success. But instead, if you keep focused on the road ahead, you’ll come out on top. And based on what I’m seeing, we should continue to expect a steady rally next year in the S&P 500.
If this is a trend you’d like to invest in, consider the SPDR S&P 500 Index Fund (SPY). It’s designed to correspond generally to the total return performance of the underlying index. It trades roughly 50 million shares per day, so it should be easy to get into and out of. And given its asset diversification, it’s a good way to gain exposure to a variety of economic sectors without the risk of choosing a single stock. While that may cap your upside gains, it can also limit your downside losses.
Five Stories Moving the Market:
Japan’s ruling coalition is in danger of losing its majority in the lower house of parliament for the first time since 2009; the ruling Liberal Democratic Party may not garner enough support even in partnership with its long-running ally Komeito at this weekend’s election, according to polls by Asahi and Kyodo News – Bloomberg. (Why you should care – a loss of majority control could pile political pressure on the Bank of Japan’s plans to stop raising interest rates)
Japanese Finance Minister Katsunobu Kato and U.S. Treasury Secretary Janet Yellen discussed recent exchange-rate moves, among other topics, in a bilateral meeting, a senior Japanese finance ministry official said – Reuters. (Why you should care – Japanese officials are likely trying to stem recent weakness in the yen)
Taiwan Semiconductor has achieved early production yields at its first plant in Arizona that surpass similar factories back home, a significant breakthrough for a U.S. expansion project initially dogged by delays and worker strife – Bloomberg. (Why you should care – rising U.S. production should ease concerns about China taking back Taiwan, and remove an overhang for companies like Nvidia)
Apple's iPhone sales in China slipped 0.3% while rival Huawei posted a 42% surge in the third quarter of 2024; Apple reached second place with a 15.6% market share, though down 0.5 percentage points year-on-year, while Huawei claimed third place with 15.3%, gaining 4.2 percentage points, data from researcher IDC showed – Reuters. (Why you should care – the new iPhone’s launch in China helped Apple regain a top five market share)
The eurozone’s economy continues to stagnate, according to business surveys, indicating that Germany and France (Europe’s biggest economies) are largely responsible for the weakness – WSJ. (Why you should care – manufacturing weakness is likely to support more rate cuts by the European Central Bank)
Economic Calendars:
Earnings – NYCB (before the open)
Annual Meetings of the International Monetary Fund and World Bank Groups
Japan – CPI for October
Eurozone – Private Sector Loans for September (4 a.m.)
Durable Goods Orders (Preliminary) for September (8:30 a.m.)
University of Michigan Consumer Sentiment (Preliminary) for October (10 a.m.)
Baker Hughes Rig Count (1 p.m.)
CFTC’s Commitment of Traders Report (3:30 p.m.)
Fed Releases Balance Sheet Updates on Commercial Banks (4:15 p.m.)
Fed Goes Into Media Blackout Ahead of Next Policy Meeting (12:01 a.m. Saturday)