The S&P 500 starts 2025 on solid footing after posting remarkable gains over the previous two years, as analysts are assessing the potential impacts of political changes and market dynamics moving forward.
When the S&P 500 returned 23% for 2024, it marked the first occurrence of back-to-back annual returns exceeding 20% since 1997-1998. This performance was spurred by the Federal Reserve ending its prolonged interest rate hikes and initiating cuts, which fueled stocks amid the 'artificial intelligence revolution'. According to financial analysts, companies attributed to this AI wave, particularly Nvidia (NVDA), continue to cause considerable momentum within stock markets.
Still, some caution prevails among investors who have been supporting smaller AI firms like BigBear.ai (BBAI) and SoundHound (SOUN). Their weak financial performance raises questions about their longevity. "These stocks appear too good to be true," remarked one financial expert. On the other hand, Nvidia remains the ringleader of AI excitement, thriving off its strong solution platform.
Investors felt additional optimism after November 2024 when the 'Trump bump' lifted market indexes significantly. Yet, as 2025 kicks off, some concerns have emerged over potential tariffs imposed by the new administration. Incoming President Trump might introduce tariffs of up to 25% on goods from Mexico and Canada, potentially inflaming trade tensions with China, which could, let’s face it, drive inflation upward for American consumers.
"If the Federal Reserve raises interest rates to combat rising demand due to these tariffs, we could see some volatility within the S&P 500 this year," warned another market analyst. Indeed, these looming policy changes might threaten the index’s positive outlook, as pressure mounts to keep inflation at bay.
Meanwhile, trading on the first day of the new year indicated investors are still hoping to maintain momentum. Stocks were relatively unchanged as the market entered 2025, with the S&P 500 and Nasdaq Composite rising slightly by less than 0.1%. The Dow Jones fell by 54 points or 0.1%. Tech giant Apple’s 2% decline and Tesla’s 4% drop after disappointing annual deliveries tempered overall gains.
Despite these hiccups, Nvidia’s 1.9% rise provided some buoyancy, hinting at potential strength among semiconductor stocks, which have displayed solid performance. The previous year ended for the S&P 500 with four consecutive down days—the first such streak since 1966—prompting skepticism about the potential for the traditional end-of-year 'Santa Claus rally'. Historically, this rally is marked by positive trading during the final days of December and the early days of January, yielding average gains of about 1.3%.
Jonathan Golub, UBS strategist, emphasized optimism amid mixed market feelings: "While it’s tempting to view the continued stock rally as irrational exuberance, there are underlying economic strengths and lower recession risks supporting this trend," he noted. Golub suggested the possibility of 2025 being another year of excellent performance, depending on various external factors.
One notable market behavior is the head-and-shoulders pattern formed by the S&P 500 since November. This classic chart formation typically signals potential market tops, and investors are advised to monitor significant support levels placed around 5,875, 5,670, and 5,445. Conversely, key resistance levels to watch as the index rises lie at 6,090 and 6,290.
"A decisive move below 5,875 might signal serious declines," indicated another analyst. "Conversely, if we breach established resistance of 6,090, we could be gearing up for another bullish run toward 6,290. Both sides of the equation need close watching. ”
Warren Buffett has also made headlines by increasing his stake in S&P 500 component VeriSign (VRSN). Buffett’s Berkshire Hathaway acquired over 377,000 shares totaling approximately $73.95 million recently. This move, banking on VeriSign’s substantial internet domain presence since the late 1990s, showcases confidence even amid market uncertainties.
Buffett, sitting on cash reserves exceeding $300 billion as he heads toward 2025, appears selective about investments. Market analysts regard this strategy as prudent, emphasizing company fundamentals as he expands Berkshire's portfolio.
Overall, as market watchers keep their fingers on the pulse, 2025 promises to be filled with mixed signals ranging from significant political influences to the vibrant role of technological advancements. The need for cautious optimism hangs thickly as the S&P 500 transitions toward another year of potential highs and lows.