January 8, 2025: U.S. Stocks: More of the Same

In large-cap U.S. stock markets, 2024’s performance was much like 2023. The S&P 500® Index produced total returns in both years that were well above historical averages (26% in 2023 and 25% in 2024). Both years were marked by lopsided performance, with the S&P 500® market-cap-weighted index beating the S&P 500® equal-weight index by 12% in 2023 and in 2024. This performance variance speaks to the outsized role of a few large stocks on the market-cap-weighted index’s return.

How much longer can the market continue to go up? We cannot say, of course. But prospects of continued U.S. economic growth and a Federal Reserve with a bias toward lower interest rates provide a constructive backdrop for U.S. stocks.

We would also note that, while the S&P 500® is inarguably expensive at 22x estimates of future earnings, current prices have proven questionable predictors of near-term returns. In fact, of the 11 prior periods in which the S&P 500® has produced back-to-back annual returns of 20% or more, the market has proceeded to generate positive returns in eight times in the third year, with an average total return of 9.7%. Thus, while it is reasonable for investors to feel queasy about the S&P 500® trading near all-time highs, that unease should not convince investors that the market must soon fall.

Weekly Market Update: January 8, 2025