Why a Strong 2024 Doesn’t Necessarily Mean Stocks “Need a Breather” in 2025
As we wrap up the year, equity markets have had a stellar run (aside from yesterday’s bloodbath!). The S&P 500 is up over 20% year-to-date, and global stocks, as tracked by the MSCI World Index, have climbed more than 17%.
It’s been a strong year across the board—small-caps, growth stocks, value stocks, and of course the Nasdaq are all posting impressive double-digit gains.
If the current upward trend holds, this will be the first time since 1998-1999 that the S&P 500 has delivered two consecutive 20%+ years. While this is great news for investors, it’s also sparked some concerns.
Does Two Strong Years Mean a Weak Third Year?
It’s natural for investors to feel a bit uneasy after a market rally. It’s like the investing version of the “fear of heights.” After two strong years, many begin to assume a pullback is inevitable—an echo of what happened in 2000 when the dot-com bubble burst. This has some convinced that 2025 is poised to deliver negative returns.
But here’s the thing: strong returns don’t cause weak returns. Historically, bull markets tend to produce clusters of strong years. In fact, annual returns of 20% or more aren’t unusual—they’re actually quite common.
Let’s look at the data:
- From 1980 to 2024, the S&P 500 has posted 20%+ gains in one out of every three years.
- Returns of 25% or greater have happened in one out of every four years.
The chart below highlights intra-year declines (red dots) versus annual returns (gray bars). What stands out is the sheer number of positive years—and how often those years have delivered significant gains.
What History Tells Us About Year Three
From 1928 through 2023, the average return for U.S. stocks following a 20%+ year has been 8.92%. While that’s not another blockbuster year, it’s far from weak. Stocks don’t necessarily need a “breather” simply because they’ve risen sharply two years in a row.
Now, I want to be clear, I’m not predicting that we’re in for another double-digit year. Only that history suggests that expectations for a big drop after two years of stellar gains is unfounded.
What Could Drive Markets in 2025?
Looking ahead, there are reasons to remain constructive on equities:
- Earnings Growth Broadening: We’re starting to see growth expand beyond the tech giants.
- Monetary Policy: The Federal Reserve’s easing stance remains supportive for equities.
- Strong Economic Data: Consumer spending, retail sales, and business cycle indicators are holding firm.
The risks? Economic overheating is on the radar. Policy shifts—like tax cuts or deregulation—could cause a rapid acceleration in economic activity, pushing sentiment into overly optimistic territory. These are possibilities, not forecasts, and will depend on the specifics of any policy changes.
Bottom Line for Investors
Strong years don’t doom markets to reversal. Corporate earnings and profit margins expand based on economic fundamentals, not timelines. If earnings growth and cash flows remain strong, 2025 could be another positive year for investors.
Rather than assuming markets “need a breather,” stay focused on the big picture and the underlying fundamentals. Bull markets don’t downshift just because stocks have had a great two-year run.
Sources:
JP Morgan “Guide to the Markets”
YCharts
Yahoo Finance
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
More relevant articles by Financial Synergies:
Blog Disclosures
This content, which may contain security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own financial advisors as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blogs, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Financial Synergies Wealth Advisors, Inc. employees providing such comments, and should not be regarded as the views of Financial Synergies Wealth Advisors, Inc. or its respective affiliates or as a description of advisory services provided by Financial Synergies Wealth Advisors, Inc. or performance returns of any Financial Synergies Wealth Advisors, Inc. client.
Any opinions expressed herein do not constitute or imply endorsement, sponsorship, or recommendation by Financial Synergies Wealth Advisors, Inc. or its employees. The views reflected in the commentary are subject to change at any time without notice.
Nothing on this website or Blog constitutes investment or financial planning advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. It also should not be construed as an offer soliciting the purchase or sale of any security mentioned. Nor should it be construed as an offer to provide investment advisory services by Financial Synergies Wealth Advisors, Inc.
Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Synergies Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Any charts provided here or on any related Financial Synergies Wealth Advisors, Inc. personnel content outlets are for informational purposes only, and should also not be relied upon when making any investment decision. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Information in charts have been obtained from third-party sources and data, and may include those from portfolio securities of funds managed by Financial Synergies Wealth Advisors, Inc. While taken from sources believed to be reliable, Financial Synergies Wealth Advisors, Inc. has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. All content speaks only as of the date indicated.
Financial Synergies Wealth Advisors, Inc. is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Financial Synergies Wealth Advisors, Inc. and its representatives are properly licensed or exempt from licensure. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
See Full Disclosures Page Here
After a Huge Year, are Stocks Due for a Drop in 2025?
Why a Strong 2024 Doesn’t Necessarily Mean Stocks “Need a Breather” in 2025
As we wrap up the year, equity markets have had a stellar run (aside from yesterday’s bloodbath!). The S&P 500 is up over 20% year-to-date, and global stocks, as tracked by the MSCI World Index, have climbed more than 17%.
It’s been a strong year across the board—small-caps, growth stocks, value stocks, and of course the Nasdaq are all posting impressive double-digit gains.
If the current upward trend holds, this will be the first time since 1998-1999 that the S&P 500 has delivered two consecutive 20%+ years. While this is great news for investors, it’s also sparked some concerns.
Does Two Strong Years Mean a Weak Third Year?
It’s natural for investors to feel a bit uneasy after a market rally. It’s like the investing version of the “fear of heights.” After two strong years, many begin to assume a pullback is inevitable—an echo of what happened in 2000 when the dot-com bubble burst. This has some convinced that 2025 is poised to deliver negative returns.
But here’s the thing: strong returns don’t cause weak returns. Historically, bull markets tend to produce clusters of strong years. In fact, annual returns of 20% or more aren’t unusual—they’re actually quite common.
Let’s look at the data:
The chart below highlights intra-year declines (red dots) versus annual returns (gray bars). What stands out is the sheer number of positive years—and how often those years have delivered significant gains.
What History Tells Us About Year Three
From 1928 through 2023, the average return for U.S. stocks following a 20%+ year has been 8.92%. While that’s not another blockbuster year, it’s far from weak. Stocks don’t necessarily need a “breather” simply because they’ve risen sharply two years in a row.
What Could Drive Markets in 2025?
Looking ahead, there are reasons to remain constructive on equities:
The risks? Economic overheating is on the radar. Policy shifts—like tax cuts or deregulation—could cause a rapid acceleration in economic activity, pushing sentiment into overly optimistic territory. These are possibilities, not forecasts, and will depend on the specifics of any policy changes.
Bottom Line for Investors
Strong years don’t doom markets to reversal. Corporate earnings and profit margins expand based on economic fundamentals, not timelines. If earnings growth and cash flows remain strong, 2025 could be another positive year for investors.
Rather than assuming markets “need a breather,” stay focused on the big picture and the underlying fundamentals. Bull markets don’t downshift just because stocks have had a great two-year run.
Sources:
JP Morgan “Guide to the Markets”
YCharts
Yahoo Finance
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
More relevant articles by Financial Synergies:
Blog Disclosures
This content, which may contain security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own financial advisors as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blogs, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Financial Synergies Wealth Advisors, Inc. employees providing such comments, and should not be regarded as the views of Financial Synergies Wealth Advisors, Inc. or its respective affiliates or as a description of advisory services provided by Financial Synergies Wealth Advisors, Inc. or performance returns of any Financial Synergies Wealth Advisors, Inc. client.
Any opinions expressed herein do not constitute or imply endorsement, sponsorship, or recommendation by Financial Synergies Wealth Advisors, Inc. or its employees. The views reflected in the commentary are subject to change at any time without notice.
Nothing on this website or Blog constitutes investment or financial planning advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. It also should not be construed as an offer soliciting the purchase or sale of any security mentioned. Nor should it be construed as an offer to provide investment advisory services by Financial Synergies Wealth Advisors, Inc.
Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Synergies Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Any charts provided here or on any related Financial Synergies Wealth Advisors, Inc. personnel content outlets are for informational purposes only, and should also not be relied upon when making any investment decision. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Information in charts have been obtained from third-party sources and data, and may include those from portfolio securities of funds managed by Financial Synergies Wealth Advisors, Inc. While taken from sources believed to be reliable, Financial Synergies Wealth Advisors, Inc. has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. All content speaks only as of the date indicated.
Financial Synergies Wealth Advisors, Inc. is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Financial Synergies Wealth Advisors, Inc. and its representatives are properly licensed or exempt from licensure. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
See Full Disclosures Page Here
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