Stock investors may face challenges in 2025, according to Ned Davis Research. The S&P 500's streak of hitting record highs often results in weak returns the following year. The research firm expressed doubts about a productivity surge boosting stocks, unlike the situation in the 90s.
The Significance of the Stock Market's Record-Breaking Streak
The ongoing record-breaking performance of the stock market in 2024 could serve as a warning for investors to exercise caution, as per the insights from strategists at Ned Davis Research. The S&P 500 has achieved 54 all-time closing highs since the beginning of the year, reflecting a strong bullish trend.
Historical Trends and Future Outlook
Investors in 2024 have benefited from factors like Federal Reserve rate cuts, growing interest in artificial intelligence, and supportive policies under the Trump administration. However, based on historical data, a year marked by numerous record highs often precedes a challenging period for stocks in the following year, setting a cautious tone for 2025.
Research spanning back to 1928 reveals that in years with over 35 record highs, the median gain for the S&P 500 the next year was only 5.8%, below the long-term average of 8%. Moreover, years with at least 50 record highs saw a median return of -6% the following year.
Despite the general trend of poor performance post-record highs, exceptions exist. For instance, in 1996, the S&P 500 delivered a 20% return despite hitting 77 record highs the previous year. This anomaly was largely attributed to the dot-com productivity surge, which fueled economic growth and kept inflation in check.
Challenges and Potential Scenarios for 2025
The research firm emphasized the limitations of momentum studies, highlighting that perpetual stock gains are unlikely. While there is hope that AI advancements could trigger another productivity surge and maintain benign inflation and Fed policies, history indicates this outcome is rare.
Technical indicators in the market also support the expectation of a weaker 2025. Narrow breadth, where stock market gains are concentrated in a few companies, could signal a tough year ahead for equities.
Differing Views and Investor Sentiment
While Wall Street remains optimistic about equities in the coming year, many forecast a more subdued performance compared to recent years. Concerns about overvaluation among large-cap stocks and extreme levels in certain technical measures have led some strategists to adopt a more cautious stance.
Furthermore, the latest Investor Sentiment Survey by AAII revealed that 39% of investors hold a bearish outlook on stocks for the next six months, marking the most pessimistic sentiment recorded in the past year.
These varying perspectives and market indicators suggest a nuanced outlook for investors navigating the stock market landscape in 2025.
Original article source: Business Insider
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By: jsor@businessinsider.com (Jennifer Sor)
Title: Why the Stock Market’s Record-Breaking Run Could Spell Trouble for Investors in 2025
Sourced From: markets.businessinsider.com/news/stocks/stock-market-outlook-2025-sp500-prediction-investing-record-highs-2024-12
Published Date: Tue, 03 Dec 2024 18:41:42 +0000
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