The past two years have been remarkable for investors, with the S&P 500 posting back-to-back gains of over +20%. The chart below takes a closer look at 2024’s price movement and uses yellow shading to mark the days when it closed at an all-time high. At the start of this year, the S&P 500’s previous all-time high was set in January 2022. It took over two years to reclaim the prior high, but once the index broke through in late January 2024, it set more than 50 new highs this year.

The stock market’s steady climb this year speaks to investors’ growing confidence. Investors are optimistic about the artificial intelligence industry’s growth potential. The economy has outperformed expectations driven by robust consumer spending, growing at an above-trend rate in Q2 and Q3 despite high interest rates. After the November election, the stock market rally intensified as investors focused on the incoming administration’s policy agenda. Expectations for tax cuts, deregulation, and energy production are fueling hopes for stronger economic growth. The bond market echoes the confidence in equity markets, and corporate high-yield credit spreads are at levels not seen since May 2007.

The question on many minds is whether the momentum can continue in 2025. The S&P 500 currently trades at over 22x its next 12-month earnings estimate, a level not seen outside of periods of the late-1990s tech bubble and the post-COVID recovery. Investors have shown a willingness to pay higher multiples, but with valuations at extremes, earnings will play an important role in determining the stock market’s next move. The current bull market, which started in October 2022, is now in its third year, and it’s common to see investors shift focus to fundamentals as the bull market matures. 2025 is shaping up to be a year where companies will need to deliver on investors’ expectations to justify their high prices.

Published by Market Desk Research and distributed by QuadCap Wealth Management, LLC.

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The S&P 500 Index or Standard & Poor’s 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S.

The Russell 2000 index measures the performance of approximately 2,000 small-cap US equities.

The MSCI EAFE Index is a stock market index that measures the performance of large- and mid-cap companies across 21 developed markets countries around the world. Canada and the USA are not included.

The MSCI Emerging Markets Index captures large and mid cap representation across 24 Emerging Markets (EM) countries.

The Nasdaq 100 Index is a stock index of the 100 largest companies by modified market capitalization trading on Nasdaq exchanges.

The Russell 1000 Growth index is an index that tracks large cap, growth stocks. This benchmark is important for investors that might tilt their investments towards large cap growth. Growth stocks, in comparison to value stocks, are considered companies with a more growth potential, and a higher risk profile.

The Russell 1000 Value index is an index that tracks large cap, value stocks. This benchmark is important for investors that might tilt their investments towards large cap value. Value stocks, in comparison to growth stocks, are considered companies with a stable cash flow, and more mature business model.

The CBOE VIX Index is a calculation designed to produce a measure of constant, 30-day expected volatility of the U.S. stock market, derived from real-time, mid-quote prices of S&P 500® Index (SPX℠) call and put options.

The Magnificent 7 is a group of major tech companies with stock growth that, on average, far outpaced the high-performing S&P 500® in recent years.

Coined in 2023, the group consists of Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.

The Dow Jones Industrial Average, or simply the Dow, is a stock market index that indicates the value of 30 large, publicly owned companies based in the United States, and how they have traded in the stock market during various periods of time. These 30 companies are also included in the S&P 500 Index. The value of the Dow is not a weighted arithmetic mean and does not represent its component companies’ market capitalization, but rather the sum of the price of one share of stock for each component company. The sum is corrected by a factor which changes whenever one of the component stocks has a stock split or stock dividend, so as to generate a consistent value for the index.

The Bloomberg US Aggregate Bond Index is used as a benchmark for investment grade bonds within the United States. This index is important as a benchmark for someone wanting to track their fixed income asset allocation.

The Bloomberg US Corporate Index covers performance for United States corporate bonds. This index serves as an important benchmark for portfolios that include exposure to investment grade corporate bonds.

The Bloomberg US Corporate High Yield Index covers performance for United States high yield corporate bonds. This index serves as an important benchmark for portfolios that include exposure to riskier corporate bonds that might not necessarily be investment grade.

Treasuries, also known as Treasury securities, are debt obligations issued by the United States government. They are used to raise cash needed to fund government operations and help finance the federal deficit. Treasuries are backed by the full faith and credit of the US government, making them one of the safest investments. They are an important instrument in monetary policy, allowing central banks to control the money supply.

The Prime Rate is the interest rate that commercial banks charge their most creditworthy corporate customers. The prime rate is derived from the federal funds rate, usually using fed funds + 3 as the formula.