Stocks' Bull-market Cycle Could Speed Up in 2025 as the S&P 500 Bounces

The S&P 500 has rebounded from its losses last week, recovering from a decline that briefly erased the boost it received following the recent U.S. election. Despite the setback, the index remains on track for a strong 2024, with the potential to post consecutive annual gains exceeding 20%.

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The outcome of the November 5 election may provide additional momentum to the ongoing bull market in U.S. equities, according to Andrew Slimmon, senior portfolio manager for U.S. equities at Morgan Stanley Investment Management. Speaking by phone, Slimmon noted that the S&P 500, which climbed 0.4% on Tuesday to mark its second consecutive session of gains, is showing resilience. The index had dropped 2.1% last week but surged 4.7% the prior week, fueled by optimism around the election results.

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Slimmon speculated that the election could accelerate the bull market’s returns as it enters its third year, following a recovery from a bear-market low in October 2022. Historically, bull markets last approximately four-and-a-half years on average. He referenced John Templeton’s famous maxim about bull markets: they “are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” Slimmon believes the current market environment reflects the optimism phase, potentially setting the stage for a strong 2025.

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Stock market optimism has grown since Donald Trump won the presidential election, Slimmon observed, alongside robust U.S. economic growth. “I don’t think you’re going to hear many people being very pessimistic” about stocks in 2025, he remarked. He added that the economy’s unexpected strength has shifted narratives from fears of a "hard landing" recession to a "soft landing" scenario, and now, to the idea of "no landing" at all.

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This year, investors’ recession concerns from early 2024 have largely subsided, replaced by expectations of slower economic growth without a full-blown contraction. Inflation has been easing toward the Federal Reserve’s 2% target, fostering confidence in a stable economic environment. Slimmon pointed out that many market participants anticipate the U.S. economy will accelerate under the policy direction of the incoming White House administration.

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The Federal Reserve’s decision in September to begin cutting interest rates has also supported the market. This marked the first rate reduction since 2020, following a sharp inflationary surge during the pandemic that peaked in 2022.

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U.S. stocks have enjoyed a rally throughout 2024, with the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite each reaching record highs. As of Tuesday, the S&P 500 was only 1.4% below its all-time peak set on November 11. Year-to-date, the index has risen approximately 24%, including a 3.7% gain in November alone, according to FactSet data. This comes after the index also climbed about 24% in 2023.

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In October, Slimmon shared his preference for cyclical sectors, such as financials and industrials, reflecting his belief in the economy’s underlying strength. He noted that cyclical stocks often respond positively to pro-growth policies like corporate tax cuts and deregulation, which the market expects from President-elect Trump.

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However, some investors remain cautious about Trump’s trade policies, particularly his stance on tariffs. David Kelly, chief global strategist at J.P. Morgan Asset Management, expressed concern in a recent note about the potential inflationary impact of new tariffs. Trump has proposed a 10% tariff on all imported goods and a 60% tariff on Chinese imports. Kelly highlighted that around 38% of U.S. imports come from countries with free-trade agreements, such as Canada and Mexico, which could limit the scope of unilateral tariff increases.

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Slimmon downplayed fears of significant inflation, suggesting that Trump is likely to use tariffs as a negotiating tool rather than imposing measures that could cause inflation to surge dramatically.

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Tuesday’s trading session reflected a largely positive market sentiment. The Nasdaq outperformed with a 1% gain, while the S&P 500 rose modestly. The Dow, however, slipped 0.3%, according to data.

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Looking ahead, Slimmon believes the market is entering a seasonally favorable period with limited downside risk. “Seasonally, we’re at a time in the year when you just don’t get a lot of pullback,” he said. “It’s hard to see the market correcting between now and year-end.”

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The S&P 500's strong performance and the broader optimism surrounding the U.S. economy suggest that the bull market remains intact. With supportive economic conditions, easing inflation, and policy-driven momentum, the stage appears set for further gains in 2024 and beyond. Investors, however, will remain watchful of policy developments, particularly on trade, as the year progresses.

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