Can Stocks Pull Off a Third Consecutive Year of Big Gains?

The S&P 500 has delivered impressive gains in 2023 and 2024, with returns of 26.3% and 27.8% respectively. As we approach 2025, investors are wondering if stocks can pull off a third consecutive year of big gains. To answer this question, let's examine the sectors and industries that drove performance in previous years with strong returns and compare them to the current landscape.

In 2023 and 2024, technology stocks, particularly those focused on artificial intelligence (AI), led the market. Nvidia, for instance, added $3.1 trillion to its market cap over the last two years, primarily due to GPU sales for data centers used in AI development. Morgan Stanley predicts that four tech giants will invest a combined $300 billion in AI infrastructure in 2025 alone. However, the S&P 500 is currently trading at a P/E ratio of 24.7, a 36% premium to its long-term average, suggesting that valuations are elevated.

Historically, back-to-back gains of 20% or more are rare. Since 1957, this has only happened six times. In the past, such streaks were followed by modest returns or losses. The dot-com era, for example, ended with a three-year run of losses for the S&P 500 between 2000 and 2002.

In 2025, corporate America will need to meet earnings expectations, and macroeconomic conditions must remain supportive. The U.S. economy will be supported by falling interest rates, but incoming Trump administration tariffs could disrupt global trade and potentially spark inflation.

Given the elevated valuations and opposing economic forces, it's unlikely that the S&P 500 will repeat its 2023 and 2024 performance in 2025. CFRA Research expects the index to finish 2025 at 6,585, a gain of about 7% over their 2024 year-end target of 6,145. While the bull market is expected to continue, investors should anticipate a slower pace of growth.




In conclusion, while the bull market is expected to continue in 2025, investors should anticipate a slower pace of growth. Elevated valuations and opposing economic forces make it unlikely that the S&P 500 will repeat its 2023 and 2024 performance. Investors should remain vigilant and adaptable to navigate potential risks and capitalize on emerging opportunities.