Will the S&P 500 (SPX) Rise in 2025?

The S&P 500 (SPX) is set to finish 2024 with a double-digit gain, and indicators suggest the index could continue its bullish trend into 2025. While predicting stock market movements is always challenging, factors like Fed easing and historical performance after strong years provide positive signals.

However, with a new U.S. president taking office and uncertainty around policy changes, there is potential for increased risks, especially during the first presidential year. While investors largely expect deregulation, lower taxes, and new tariffs from President Trump, the details of the new policies are highly uncertain. Putting the new administration into context, in this article I will explore historical trends to see how the leading U.S. benchmark has performed in similar circumstances.

What to Expect After 2024’s Strong Performance

Since 1926, the S&P 500 has delivered a double-digit percentage return in a stunning 59 years, or roughly 60% of the time. If we lower the hurdle to just a positive return, the S&P 500 has posted gains 73% of the time.

As a result, returns like the ones we experienced in 2023 are not extraordinary. Although the performance after a double-digit return year can vary, the overall trend has been positive. Historical records show the following:

• 55% of the time you should expect another double-digit return year.
• 16% of the time you should expect a positive year, with returns falling short of the 10% hurdle.
• 29% of the time, you should expect a negative return.

Based on historical returns, we can conclude that there is a 71% chance that the bull market will continue into 2025, while the likelihood of a correction stands at 29%. As such After the double-digit gains in 2024, the chances of the market posting another positive year are only slightly below average.

S&P 500 Performance in the First Year of a Presidency

President Trump will officially become the next President of the United States on January 20, 2025. Historical records for the S&P 500’s performance in the first year of a presidential administration show the following:

• 54% of the time you should expect a double-digit return year.
• 4% of the time you should expect a positive year, with returns falling short of the 10% hurdle.
• 42% of the time you should expect a negative return.

Based on historical returns in the first year of a presidential administration, we can conclude that there is a 58% chance the bull market will continue, while the probability of a market correction is 42%. Historically, the first year of a presidential term carries a higher risk of a market correction, as the typical S&P 500 year has only a 27% chance of a negative return.

The Fed Set to Continue Easing Policy in 2025

The Fed has lowered interest rates by 0.75% so far this year and anticipates a Fed funds rate of approximately 3.4% by the end of 2025, indicating further rate cuts ahead. This is expected, as rates remain above the 2.9% estimate for the neutral rate—the rate that neither stimulates nor restricts economic growth.

Since 1955, the Fed has reduced the Federal Funds rate 28 times from its starting level at the beginning of the year, signaling periods of monetary easing. Historical records for stock performance in such circumstances show the following:

• 57% of the time the S&P 500 posted a double-digit gain.
• 18% of the time returns were positive but below the 10% hurdle rate.
• Only 25% of the time did the index incur a loss while the Fed was easing.

Of the three historical metrics observed so far, the Fed easing indicator shows the highest probability (75%) of the bull market continuing.

Is the S&P 500 a Buy?

Turning to Wall Street, the SPDR S&P 500 ETF Trust (SPY), which tracks the S&P 500 Index, earns a Moderate Buy consensus rating based on 397 Buys, 101 Holds, and six Sell ratings. Additionally, SPY stock’s average price target is $664.97, implying a 9.43% upside potential.

The Takeaway

History does not repeat itself, but it often rhymes. While no one knows for certain how the S&P 500 will perform in 2025, historical data from the three observed indicators (Fed easing cycles, the first year of a new presidential term, and performance after double-digit return years such as 2024) point to further gains to come in 2024.

The odds of another double-digit gain are roughly 54-57%, and lowering the bar to just a positive return results in a 58%-71% chance to finish the year in the green. This leaves the least desirable option – a down year – with a probability of 29%-42%. After reviewing the data, I believe the S&P 500 is due for another positive year. However, the risk of a market correction has increased compared to 2024.

Disclosure