Image source: Getty Images
After a surprising year, some Wall Street analysts believe S&P 500 in the United States they could reach 7,000 by 2025. I can't blame them for being so optimistic.
More to come?
Truth be told, the S&P 500 has been on the rise for some time. A 16% gain in 2020, a year plagued by the pandemic, was followed by almost 27% in 2021. Things went south in 2022 with a 19% drop. But the bulls returned in 2023 with a 24% increase. A similar gain seems likely once we hear the closing bell on New Year's Eve. With momentum like this, it's hard to go against the crowd.
Of course, much of this heavy lifting has been done by a small group of stocks like chipmaker NVIDIA (NASDAQ: NVDA).
If any company was in exactly the right place at exactly the right time to benefit from all things ai, it is surely this one. Revenue and profits have continually exceeded expectations as customers have spent billions of dollars purchasing their graphics processing units (GPUs) to get ahead of their competitors.
And it's hard to bet against this form continuing. Number crunchers believe FY25 revenue (ending in January) will reach nearly $130 billion. That's more than double what Nvidia earned in FY24.
The problem is that its valuation has reached unpleasant levels. What happens if those orders begin to moderate?
take out the bears
But it's not just the tech titan that looks frothy. According to Schiller's cyclically adjusted price-to-earnings (P/E) ratio, the S&P 500 has only been more expensive twice before. The last time was in November 2021 (note what happened with that fall in 2022). The previous time was during the dotcom boom of 1999.
On top of this, there are concerns that Donald Trump's introduction of punitive tariffs could prove inflationary. That won't be good for interest rates. Tellingly, markets hated Federal Reserve Chair Jerome Powell's recent warning that fewer rate cuts should now be expected in 2025.
All of this before we have even considered the potential impact of other geopolitical developments on market sentiment.
Long term focus
Taking both sides into account, I can confidently say that I have no idea where the S&P 500 will go next year. But I don't need to worry either. The only people who should probably do it are those who want to make money in 2025.
That time horizon is not conducive to investing, at least for a committed fool like me. In fact, you could say it's more like the game. And a great player usually requires an advantage, whether in the form of experience or access to more data or an icy temperament.
I'm sure I don't have that advantage. But considering that most professional fund managers can't beat the US index consistently, I'm not sure they can either. However, they still want to receive their juicy fees for trying, bless them.
No, I put my faith in the not-so-secret ingredient of compound interest and the knowledge that, over the long term, the direction of the S&P 500 has been up and to the right.
I think that momentum will continue. And that's why I will continue to pump cash into the US market (and elsewhere) throughout 2025.
