The stock market reached record highs in 2024, building on impressive gains from the previous year. The S&P 500 climbed nearly 28% this year. The tech-heavy Nasdaq surged by 34%, while the Dow Jones Industrial Average increased by 16%.
Such consecutive years of strong stock market performance leave forecasters pondering the future. Will high stock prices deter potential investors in 2025, or will the market’s momentum continue to push shares higher? Experts have identified a mix of favorable trends that contributed to this year’s rising share prices, including solid economic growth and the long-anticipated Federal Reserve interest rate cuts.
These positive forces are expected to continue bolstering stock prices in 2025, though there remains a heightened level of uncertainty that could either halt or amplify gains. The principal uncertainty for stocks in 2025 stems from the policies of President-elect Donald Trump. “As we close the books on 2024 and peer into 2025, perhaps the uncertainties this time are of a magnitude beyond the norm,” noted Kevin Gordon and Liz Ann Sonders, investment strategists at Charles Schwab.
Amidst the positive market trends, the economy demonstrated its resilience in 2024, continuing to grow at a solid pace while inflation subsided. The U.S. sustained a robust 2.8% annualized GDP growth rate over the three months ending in September, based on the most recent data available. Inflation saw a noteworthy reduction from its peak of over 9% in June 2022.
This trend prompted the Federal Reserve to ease its monetary policy, resulting in the first interest rate cuts in four years.
Stock market surge continues into 2025
Over the past few months, the Fed has cut its benchmark rate by three-quarters of a percentage point, reducing the financial burden on borrowers and improving company valuations, thereby fueling stockholder returns.
Federal Reserve Chair Jerome Powell discussed this shift in policy at the DealBook Summit in New York in early December, indicating the Fed is likely to continue cutting interest rates next year, though persistent inflation could slow or even halt further cuts. “Markets expect gradual rate cuts next year, which would imply inflation stays under control, the job market hums along at an acceptable pace, stocks rise, and everybody is happy,” Callie Cox, Chief Market Strategist at Ritholtz Wealth Management, told ABC News. “Reality isn’t that cut and dry, though,” she added.
Analysts have highlighted uncertainty surrounding Trump’s economic policies as a potential variable affecting the nation’s economic performance and, consequently, the stock market. While Trump’s proposed tax cuts for individuals and corporations could spur economic growth and raise stock prices, his tariff plans might negatively impact U.S. producers and retailers reliant on imported raw materials, potentially causing inflation to rise again and hurting some stocks. “The most significant wild card on the table for 2025 will be the potential implementation of tariffs,” said David Sekera, Chief U.S. Market Strategist for Morningstar.
Despite the potential challenges, there are still enticing opportunities for investors. Since 1990, there have been 12 years in which the S&P 500 has gained 20% or more, and 2024 is expected to join this list. However, sustaining such high returns for a third consecutive year would be unprecedented.
“If you’re expecting a repeat of 2024, you’re asking a lot of the market gods,” Cox concluded. Nevertheless, the allure of another rally will keep investors watchful for any early signs of market performance in 2025. “The opportunities for investors are plenty, but so are the obstacles,” said Seema Shah, Chief Global Strategist at Principal Asset Management.
