Market Outlook: What’s Next for 2025?

The S&P 500 went up more than 20% for 2 years in a row, an impressive run that doesn’t happen often. 

After 2 years of strong market performance, what should investors expect next? 

Keep reading (or watch the video) below as Mark Sorensen, our Chief Investment Officer, breaks down the latest trends –  including the potential for increased volatility, the continued impact of artificial intelligence, and what history tells us about markets after consecutive strong years.

A Rare Market Streak and What It Means for 2025

Historically, when we see back-to-back strong years, the market tends to take a breather. 

This doesn’t necessarily mean a downturn, but rather a period of increased volatility and consolidation.

One trend to watch: While big tech stocks have dominated the past 2 years, earnings growth for the top 7 technology companies in the S&P 500 is expected to slow in 2025, dropping from an average of 24% to around 18%. 

Meanwhile, the other 493 stocks in the index – many of which saw just 5% earnings growth last year – are expected to see double-digit earnings growth this year. 

This shift could lead to a broader market rally beyond just big tech.

We do think that, as we consolidate this year, with a little more volatility, there will be opportunities. 

We still think the market will finish higher –  but probably not 20% again this year.

Artificial Intelligence: A New Industrial Revolution

One of the biggest drivers of the market’s growth – and its potential for continued strength – is artificial intelligence (AI). 

AI is being compared to past industrial revolutions, like the introduction of the railroad, the automobile, and the internet. 

Just as those innovations transformed industries, AI is expected to bring efficiencies and improve margins for companies across multiple sectors.

Looking back at the 1980s and 1990s, we saw a prolonged bull market where the S&P 500 gained in 16 out of 18 years. 

Even in the 2 years when the market dipped, the following years saw major rebounds, with gains of 26% and 34%.

Investors who panicked during brief downturns may have missed out on significant long-term gains.

So even if we think this is a year of pause, we do believe that the market is in a bull market that will be sustained for a while, as technology continues to build efficiencies over time.

Volatility Is Normal and May Create Opportunity

Although 2025 may not see another 20% rally, that doesn’t mean investors should be concerned. 

Some volatility is expected, just as we saw in previous years when the market experienced pullbacks before rallying again. 

In 2023, the market dipped from July to October before rebounding to finish the year strong. 

Similarly, in 2024, we saw a couple of pullbacks before climbing to new highs.

Recent concerns around AI competition briefly shook the tech sector. 

But, as we’ve seen time and time again, the market tends to overreact to uncertainty. 

When stocks sell off irrationally, it often creates a buying opportunity.

The Fed, Interest Rates, and Inflation

One of the biggest factors affecting market performance are interest rates. 

The Federal Reserve successfully brought inflation down from over 9% to around 2.5% – 3%, but now it has stalled. 

Investors have been nervous that inflation could creep back up, leading to higher interest rates. 

However, recent CPI and PPI reports show inflation is still trending lower, easing those concerns.

At the same time, the U.S. economy remains strong, with GDP estimates continuing to rise. 

While some feared that a strong economy would force the Fed to keep rates higher for longer, the latest data suggests inflation can stay under control even with economic growth.

Check out the video as Mark Sorensen, our Chief Investment Officer, breaks down the latest trends and what history tells us about markets after strong years.

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