US Stock Market Poised for Third Consecutive Year of 20%+ Gains
The US stock market is on track to achieve a remarkable feat, with projections indicating gains of over 20% in 2025. This would mark the third consecutive year of such substantial growth, a rare occurrence in market history. The last time this happened was during the late 1990s dot-com bubble, underscoring the significance of the current market trajectory.
The S&P 500 has already demonstrated impressive performance in recent years, with substantial returns recorded in both 2023 and 2024. As investors look ahead, several key factors are expected to drive continued market strength.
Investor enthusiasm for artificial intelligence (AI) and the robust US economy are anticipated to be primary catalysts for market gains. AI, in particular, is projected to boost ‘big-tech’ stock prices through higher valuations and contribute to broader market growth. Despite the strong performance, current valuations for US stocks remain below the peak levels seen during the dot-com bubble, suggesting potential for further upside.
Economic indicators provide additional support for the bullish outlook. The excess earning yield of sectors dominated by big-tech stocks is currently above levels observed at the height of the dot-com bubble. Furthermore, the US economy is expected to outperform other major advanced economies, providing a solid foundation for corporate earnings growth.
Political factors may also play a role in shaping market dynamics. Analysts suggest that a potential second Trump administration could enhance the attractiveness of the US stock market compared to international alternatives. Proposed trade policies, while potentially limiting absolute performance, may improve relative performance by impacting non-US equities.
As the market approaches this potential milestone, investors and analysts alike will be closely monitoring economic indicators and global events that could influence this projected trajectory.