Stock Market Momentum: What to Expect in 2025
As we bid farewell to 2024, the S&P 500 Index has once again demonstrated its resilience, posting an impressive gain of over 20% for the second consecutive year. This remarkable performance has left many investors wondering what the future holds.
Historical Context: Understanding the S&P 500’s Past Performance
To better understand what lies ahead, let’s take a closer look at the S&P 500’s historical performance. Since 1950, the index has consistently shown that strong years are often followed by more gains. In fact, when the S&P 500 has gained 20% or more in a year, the next year has averaged a gain of 10.6%, outperforming its typical return of 9.3%. Moreover, the index has been positive 81% of the time in such instances.
The Sweet Spot: Moderately Down Years
Interestingly, the data suggests that the sweet spot for stocks is following a year in which the index was moderately down. When the S&P 500 was down but not by more than 10%, it was positive all nine times, averaging a gain of 23% the next year.
January Blues: A Historical Underperformance
However, January has historically been a lackluster month, especially after strong years. Since 1950, the S&P 500 has gained just over 1% on average in January, with 59% of the returns positive. After years in which the index gained 20% or more, it has been about breakeven on average, with 52% of the returns positive.
Can the Streak Continue?
After back-to-back 20% gains in 2023 and 2024, the question on everyone’s mind is: can the streak continue? While consecutive 20% gains are rare, they have happened before. In 1954 and 1955, the index posted consecutive 20%+ gains, only to experience a 3.6% drop in January 1956 and a modest 2.6% return for the year.
A Glimmer of Hope
However, there is a glimmer of hope. The next occurrence of consecutive 20% gains was in 1995 and 1996, followed by a remarkable 1997, which saw the S&P 500 surge over 6% in January and finish the year up more than 30%. This streak continued until 1999, with the index delivering gains of at least 19.5% for four consecutive years.
The Takeaway
The key takeaway is that there’s no need to fear consecutive strong years in the market. In fact, history suggests that such streaks can be a sign of continued momentum. As we enter 2025, investors can take comfort in knowing that the S&P 500 has a strong foundation to build upon.
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