There weren't many beating the bullish drum on the stock market in early April. The S&P 500 and tech-laden Nasdaq Composite were mired in a brutal downturn following harsher-than-hoped tariff announcements and growing economic concerns on jobs and inflation.
The S&P 500 retreated 19% from its mid-February highs before finding its footing on April 9. That near-bear market had everyone a bit antsy, particularly given President Donald Trump's mounting trade war.
Nevertheless, stocks' decline was fast and steep enough to cause most sentiment measures to signal oversold, suggesting that those willing to step into the fray could be rewarded for buying the dip.
And boy, have they been rewarded.
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The S&P 500 has marched 25% higher, and the Nasdaq has surged over 30%. President Trump's pause on most reciprocal tariffs fueled the gains on April 9. Hope that tariffs would settle at more manageable levels and significant new stimulus associated with trillions of dollars in tax cuts from the One Big Beautiful Bill Act kept the rally humming along to new all-time highs.
The big question on most minds now is whether this record-setting run can continue.
Those in the bearish camp point toward weaker GDP, cracks in the jobs market, and inflation risks. Bullish investors think most of those risks were priced in during the spring sell-off, and the bar has been set low enough that anything less than disaster would be good enough to push forward revenue, earnings, and economic outlooks higher, rather than lower.
The debate has prompted many popular Wall Street analysts, including Carson Group's Chief Strategist Ryan Detrick, to update their outlook.
The stock market climbs a very high wall of worry
Stocks are forward-looking and are considered a leading, rather than lagging, indicator. The ability of stock prices to predict what may happen to the economy can be messy, with short-term fits and starts. However, stocks' ability to aggregate market participants' collective wisdom is generally considered a valuable tool for economists and investors.
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The predictive nature of markets is one reason behind the old Wall Street adage, “stocks climb a wall of worry.” Often, stocks bottom when everyone thinks the worst has yet to happen, and they top when everyone sees roses and daisies.
Over the past three months, the stock market has climbed a big wall of concern.
U.S. employers have announced over 696,000 layoffs through May, up 80% year over year, according to Challenger, Gray & Christmas. The unemployment rate has inched up to 4.1% in June from 3.4% in 2023. And inflation, while much lower than in 2022, when the Federal Reserve declared war on it by significantly raising interest rates, is still above the 2% level targeted by many, including the Fed.
The backdrop still suggests that stagflation or, worse, recession is a possibility. But so far, stocks indicate the economy will sidestep most damage.
While we don't know when the Fed may support the economy with interest rate cuts, most are modeling lower rates over the coming year, helping fuel economic activity.
Also, the recently passed One Big Beautiful Bill Act contains significant tax cuts, including new Social Security income tax breaks and a higher State and Local Tax deduction, which provide additional money to support spending and GDP.
If so, analysts who cut revenue and growth outlooks this spring will shift gears, increasing forecasts and potentially fueling additional upside.
Those upward revisions would go a long way toward appeasing those concerned about the S&P 500's valuation, given that the recent rally has inflated its price-to-earnings (P/E) ratio.
The S&P 500 topped out in February when its forward price-to-earnings ratio eclipsed 22. It bottomed out when the P/E ratio reached about 19. The recent rally has again pushed the S&P 500's P/E over 22, which historically doesn't correspond with favorable one-year returns.
Images source: Leon Cooperman/Doug Kass
Analysts' mid-year 2025 stock market outlook is largely bullish
Ryan Detrick has been correctly banging the bullish drum for a while, and his team's midyear outlook also tells a bullish tale.
Detrick's optimism is partially rooted in history. He often shares data highlighting how the stock market has historically behaved after catalysts, and this time is no exception.
Fortunately, for bulls, history is on the side of more gains.
The strategist points out that since the early 1970s, there have been five instances when the S&P 500 rose by 19% in 27 trading days like this year. Each time, the market was higher one year later, returning a median of 32.6%. Since 1950, the S&P 500 has been up one year later 74% of the time, returning a median of 10.4%.
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We've already made a big chunk of returns, but Detrick's team writes, “This is still a young bull market.” The average bull market lasts 67 months, and this one has only lasted a little over 30 months so far.
“Like a cruise ship that is very hard to turn once it gets moving, bull markets tend to carry their momentum forward, another reason this one could last much longer than many think,” wrote the analysts.
As for valuation, they believe there's a bull case that a “low tariffs, big tax bill” environment will provide a catalyst for earnings, helping keep the P/E ratio in check.
“It’s hard to imagine that the tariffs will
go back to where they were, but perhaps we’re left
with about 15% additional new tariffs on average—
not at all trivial, but far from worst case,” wrote the analysts. “Companies
should be able to navigate the additional tariffs
and maintain profit margins, especially larger
companies with less fragile supply chains.”
Carson Group thinks the S&P 500 could reach 6,550, a 10% to 12% gain for 2025. Add in dividends, and the index's total return could be 12% to 15%. Currently, the S&P 500 is up about 7% in 2025.
“Stocks came soaring back in one of the largest reversals ever, suggesting the lows for 2025 are likely behind us and better times could be coming for investors,” said Detrick. “While 2025 has already been a wild ride — and we should still prepare for more ups and downs — we see reasons to expect this bull market to continue.”
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