Investors hope for US stock market trifecta this year

Investors are expecting more gains for the US stock market in 2025 after two straight standout years, fueled by a solid economy supporting corporate profits, moderating interest rates and pro-growth policies from incoming President Donald Trump.

The benchmark S&P 500 was up 23.31 per cent in 2024, even with a recent speed bump, marking its second-straight year of gains exceeding 20 per cent, lifted by megacap tech stocks and excitement over the business potential of artificial intelligence.

The index soared 53.19 per cent over the last two years, the biggest two-year percentage jump since 1998.

Investors are more confident about the economy than this time a year ago, with consumers and businesses having absorbed higher interest rates and the Federal Reserve now lowering them - albeit by not as much as hoped. Corporate profits are also expected to be strong, with S&P 500 earnings per share projected to rise 10.67 per cent in 2025, according to LSEG.

On the other side of the ledger, inflation remains stubborn, and Wall Street is wary of a rebound that could lead the Fed to change course on its easing cycle. Indeed, stocks pulled back sharply earlier in December after the central bank projected fewer rate cuts next year as it braced for firmer inflation.

Such prospects could become more likely if Trump implements tariffs on US imports that lead to higher consumer prices. Stock valuations, meanwhile, are around their steepest levels in more than three years, leaving greater potential for turbulence.

“We’ve been on quite the tear coming off the lows back at the end of 2022. It’s been pretty eyewatering,” said Garrett Melson, portfolio strategist at Natixis Investment Managers.