One big winner of 2024 was the stock market. The Dow Jones is up nearly 15% this year, and the broader S&P 500 is up more than 25% this year. But can markets sustain this momentum in 2025?
It’s hard to overstate just how well the market did in 2024.
“Just to have back-to-back gains of over 20%, you’d have to go back probably to the ‘90s, and before that into the ‘50s, before you saw something like that happen,” said Drew Pettit, director of U.S. equities strategy at Citigroup.
Though the market has been “phenomenal,” Pettit said his job hasn’t been easy. Many pieces of the economy are still settling from the pandemic.
“Economic data just doesn’t read the same way after you have that type of event,” he said.
Pettit added that markets have outpaced already healthy consumer spending and manufacturing, which are typically indicators of performance. And stocks have made gains despite high interest rates.
The real booster in 2024 has been productivity, he said. Unemployment is low. Wages have grown. And there’s the whole AI thing. It’s a reason why Sonu Varghese, global macro strategist at Carson Group, is betting on a bull market in 2025.
“We think that’s going to be an icing on the cake, a cherry or however you think about it,” he said.
Especially as AI becomes not just a tool developed by the tech industry, Varghese said, but a (potentially disruptive) tool most industries use.
But Paolo Pasquariello, a finance professor at the University of Michigan, has a more cautious read: “Clouds are definitely on the horizon for 2025,” he said.
He’s skeptical that the promises of AI will materialize quickly. And he’s worried that too much of the market’s performance is tied up in it — in a handful of stocks like Nvidia and Google.
“And if something goes wrong with these big players, the entire market is going to suffer,” Pasquariello said.
Plus, there’s uncertainty about what policies the Trump administration will put in place and uncertainty about what the Fed might do with interest rates.
