Insights

Do Equities Still Have Room to Run?

January 14, 2025

Time to Read: 5 minutes

U.S. equities weakened toward the end of 2024 and came under pressure last week after a much stronger-than-expected employment report raised concerns that the Federal Reserve may deliver fewer rate cuts in 2025 than the market previously anticipated. Though the start of the year has been choppy for U.S. equities, we don’t believe this performance foretells a negative year.

Since 1950, when the S&P 500 gained 10% or more in a year, returns averaged nearly 9% in the following year. Returns were positive a sweeping three quarters of the time with an average annual return of 16%. Accordingly, history indicates that 2025 could be another positive year for the S&P 500, albeit we expect more muted returns.

Recent market stress has been driven in part by uncertainty about how the new administration will handle the country’s budget and what the inflationary impact – if any – of potential tariffs will be. But the good news is the U.S. economy remains resilient, as evidenced by December’s jobs report. A strong economy and healthy consumer spending should support our expectations for 10-15% earnings growth in 2025.

Investors may not see the Federal Reserve cut interest rates as much this year as previously expected, but in our view, it is far better to have a strong economy with fewer rate cuts. We think history and fundamentals support equities moving higher in 2025.

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Are Earnings Broadening Beyond the Mag-7?

Tech stocks have outperformed the rest of the S&P 500 for several years, and while we expect earnings growth among these companies to continue in 2026, we see another encouraging trend emerging. Earnings across the rest of the market are on an upward path too — and are set to contribute more to earnings growth for the S&P 500 Index in 2026 than the Magnificent 7.

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Positive Signals from Industrial Production?

Industrial production is a proxy for the level of manufacturing in the economy, and last week’s report showed the highest growth rate in three years.

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Healthy Correction?

After climbing 17% year to date through late October, the S&P 500 declined 5% through November 20. We believe the market was due for a healthy correction. While further downside is possible, it would not concern us.

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The Global Economy Is Holding Up

This past year was rife with risks to the global economy: policy changes, tariff uncertainty and more. Yet, the global economy held up as manufacturing and services activity strengthened across the world.

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