Schwab Market Perspective: 2025 Outlook

The U.S. stock market generally did well in 2024 and may continue strong in 2025. However, we expect to see gear shifts and increased market volatility as potential policies from the incoming Trump administration combine with uncertainty about inflation and global economic strength.

Although the stocks in the S&P 500® index are expensive by historical standards,1 current market momentum and breadth—that is, how many stocks are advancing vs. declining— tend to bode well for returns over the next 12 months. As of December 9, 2024, the S&P 500 was up nearly 27% year-to-date, and up 31.46% on a trailing-12-month basis. During the past seven decades, there have been only two bull market peaks (when an extended rally ends) that occurred when the trailing one-year gain in the S&P 500 was above 30%. But most historical studies do point to heightened risk of volatility spikes and periodic drawdowns, which is why investor discipline is warranted.

U.S. stocks and economy: Good luck figuring this one out

We've often chuckled at comments about "markets hating uncertainty"… as if there have ever been periods of certainty. But as we close the books on 2024 and peer into 2025, perhaps the uncertainties this time are of a magnitude beyond the norm.

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President-elect Donald Trump campaigned on a platform of lower taxes and less-stringent regulations—seen as growth-positive—but also higher tariffs on imported goods and mass deportations of illegal immigrants—seen generally as stagflationary, at least initially (stagflation is a situation with high inflation, low economic growth and high unemployment). These crosscurrents and the uncertainties they are breeding make it difficult for stakeholders (both domestic and international) to plan for the future, potentially creating an environment of caution and concern across policy areas. Add to this a Federal Reserve operating in data-dependency mode, and we have a backdrop of reactionary market behavior and policy decisions.