S&P 500 could be “victim of its own success” in 2025

Investing.com – The risk of the delivering an “uninspiring” 2025 performance is heightened after two consecutive years of solid gains, according to analysts at Bank of America.

“The theme for 2025 is that the S&P 500 can be a victim of its own success,” the analysts led by Stephen Suttmeier said in a note to clients.

In 2024, the bellwether index notched an annual increase of 23.3% and logged its best two-year run since 1997-1998, with signs of a relatively healthy US economy, easing inflationary pressures, and an ongoing boom in enthusiasm around artificial intelligence all helping to support gains throughout the year.

Although hopes remain that a resilient economy and a recent shift by the Federal Reserve from hiking to cutting interest rates will extend the S&P’s streak of gains, some investors have begun to flag worries that the strong returns of 2023 and 2024 may not repeat this year.

One major uncertainty lies around the pace of the Fed’s possible rate reductions. Concerns that President-elect Donald Trump’s vow to roll out sweeping import tariffs could reignite inflationary pressures have led many Fed officials to call for caution around any more cuts to borrowing costs this year.

Indeed, minutes from the Fed’s latest meeting showed that staff members, despite slashing rates by 25 basis points in December and a full percentage point in total last year, now believed a more “careful” approach to drawdowns was prudent.

Meanwhile, Suttmeier warned the S&P “did not live up to its bullish seasonality” after it dropped by 2.5% in December, adding that this poses a “risk” for January, the first quarter, and the opening six months of 2025.

He also noted that while the S&P has rallied a third year in a row roughly two-thirds of the time, average and median returns have been “lackluster.”