The S&P 500 has gained 71% since the bull market began in October 2022. The economy has been resilient, with strong consumer spending and business investments driving corporate earnings growth. Manufacturing expanded in January for the first time in over two years.
The services sector has expanded for 56 straight months. Wall Street expects accelerating revenue and earnings growth for S&P 500 companies this year. However, bearish sentiment reached its highest level since November 2023 in February 2025.
Inflation, which had been trending lower, has now accelerated for four months in a row. Historically, the S&P 500 has returned an average of 184% during bull markets, over an average duration of 1,964 days. The current bull market, which started on October 12, 2022, has lasted 861 days with a 71% return so far.
If it follows historical averages, the index could reach 10,160, a 66% upside from its current level of 6,130. This would extend the bull market for another 1,103 days, potentially ending in late February 2028. However, past performance does not guarantee future results.
Inflation’s impact on gains
Analysts have varying views on the current bull market. Ed Yardeni believes it will continue through the decade, driven by economic resilience and earnings growth.
Tom Lee forecasts the index could hit 15,000 by 2030. On the other hand, Andrew Simmon and Gene Munster express concerns about the market nearing its late stages and a potential bubble burst in the next two years. The U.S. economy is solid, with real GDP increasing by 2.8% in 2024 and unemployment falling to 4% in January 2025.
However, business fixed investments declined in Q4 for the first time in nearly two years. Accelerating inflation could weaken consumer spending and hinder economic growth. The S&P 500’s forward price-to-earnings ratio of 22.2 is well above its 10-year average of 18.3. High valuations could deter investors and direct them towards alternatives like fixed income.
The index sustained a forward PE ratio above 22 only during the dot-com bubble and the early stages of the Covid-19 pandemic, both followed by sharp sell-offs. While historical trends suggest the bull market could continue for several years, accelerating inflation and high valuations pose potential risks in 2025. Investors should be cautious, scrutinize valuations before buying stocks, and accumulate cash to capitalize on the next market drawdown.
Stay informed about market dynamics to navigate the risks and opportunities ahead.
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