Let's talk about the US market outlook for 2025. Full live link replay >>
1. $.SPX(.SPX)$ 2025 Year-end Forecasts:
These are some of the 2025 year-end forecasts provided by various research houses for the $.SPX(.SPX)$
As of 18 Dec 2024: SPX’s closing price: 5872
On average, the year-end target is 6,658, representing a 13% upside compared to yesterday's closing price of 5,872.
The most bullish research house is Oppenheimer, they predict a target price of 7100 for the $.SPX(.SPX)$ .
However, I want you to know that analysts often change their target prices. So, I suggest you treat this target price with a grain of salt.
2. $.SPX(.SPX)$ 2025 Year-end Forecasts
Personally, my base case scenario for the year-end 2025 target price is 6,711, representing a 14% upside as well.
But in the worst-case scenario, I expect the $.SPX(.SPX)$ to close at 5,100 in 2025, representing a 13% downside.
In my worst-case scenario, I expect the P/E ratio to compress from the current level of 26x to 20x. And EPS is only growing at 6% year-over-year.
In my best-case scenario, I expect sp500 to go up by 20% to close the year at 7,330.
Bear in mind, in my best-case scenario, I expect EPS to grow 15% year-over-year. The 15% EPS growth aligns with the FactSet forecast.
I expect the P/E ratio to stay high at 26.6x, and you can also see that the current P/E ratio is already 26.4 times as well.
So, I do not expect the P/E ratio to compress in my best-case scenario.
To sustain the high P/E ratio, I think tech stocks, especially AI-related stocks, need to stay elevated.
3. Here are $.SPX(.SPX)$ Half-Month Returns (Since 1950)
Source: YahooFinance, 4 Dec 2024
Now, we are in the second half of December, and the average return is 1.35% ,78% of the time $.SPX(.SPX)$ returned positively in the 2nd half of December.I also want you to look at the performance of the first and second halves of January. Generally, 59% of the time, the first half and second half of January generate positive returns, The average return is 0.44% for the first half and 0.61% for the second half of January.
So, investors could still remain constructive from now until the end of January.
4. Another Big Gain in 2025 After Back-to-Back 20% Returns?
But a lot of investors are still underinvested because they are afraid of a major selldown given that the $.SPX(.SPX)$ has gone up more than 20% for two consecutive years.
In 2023, the $.SPX(.SPX)$ returned 27%, and 2024 may return 25%.So, investors think that there might be a correction in 2025.
However, historical data tells us that when the S&P 500 is up more than 20% for two consecutive years, 67% of the time, the following year’s return is positive.
The average return for the next year is 8%. Median return is 13%.I also want to draw your attention to 1995. 1995 marked the start of the dotcom bubble, which lasted until the year 2000.
During that period, the S&P 500 experienced five consecutive years of more than 20% returns: 1995: 38%, 1996: 22%, 1997: 33%, 1998: 29%, 1999: 21%.
I am not saying the S&P 500 will provide more than 20% yearly returns for the next three years. What I’m saying is that if this is an AI bubble, the upside could be more than anyone expects.
5. $.SPX(.SPX)$ Move Forecast of 1st Year of Trump’s Presidency
Generally, the $.SPX(.SPX)$ provides an average return of 10% in the first year of presidential terms, since 1960
So, it’s probably a good idea to stay optimistic for 2025.
The next question you should ask is: which months should you stay cautious?
The $.SPX(.SPX)$ may experience some sell-offs during two periods:
First, from mid-February to the end of March.
Second, from early August to the end of September.
I think a sell-off starting in mid-February is likely. Since Trump’s inauguration is on January 20th, he may underdeliver on his promises. As a result, the market may see some correction beginning in February.
If we look at the S&P 500 returns in the first year of U.S. presidential terms since 1950, the average return is -1.55% in February, -1.38% in August, and -0.28% in September.
So, just be cautious during these months.
However, seasonality is just seasonality. Sometimes it works, and sometimes it doesn’t.
For example, here is the average S&P 500 performance in election years. I’ve shown this many times in my webinars this year.
And I told a lot of investors that they might see some corrections from February to March and from September to October.
But what really happened in 2024 is that there was no correction in February and March. The $.SPX(.SPX)$ only encountered a sell-off in April. There was also no sell-off in September and October. The major sell-off this year happened in July.
So, the moral of the story is that seasonality can offer guidance for investing, but it should not stop you from investing if seasonality doesn’t play out as expected.
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