Mixed signals for US stocks in 2025

The stock market is sending mixed signals as we head into 2025. While some strategists expect a decent year with the S&P 500 potentially rising to 6,600 or higher, others are warning of a possible correction and a challenging year ahead. James Demmert, Chief Investment Officer at Main Street Research, advises investors to prepare for a typical market correction of 8% to 12% in 2025. He believes the Federal Reserve’s role will be crucial, as they are likely to maintain a neutral rate after stabilizing the economy. Demmert sees the expected correction as a buying opportunity, stating, “Investors should buy that correction because we’re in the early phases of a bull market.” However, Ned Davis Research points to worrying signs in the market’s internals. The number of declining stocks has outpaced advancing stocks for 14 consecutive days, the worst streak since 1978. This suggests underlying damage in the benchmark index, despite the S&P 500 being only 4% off its record high.

Mixed outlook for 2025 stocks

Ed Clissold, chief US strategist at NDR, warns that ten-day losing streaks or more in advancing stocks relative to declining stocks could be a bad omen for future stock market returns. Historically, such streaks have led to lackluster forward returns for the S&P 500. Investor sentiment is another concern, as it has shown signs of extreme optimism since September. Clissold cautions, “Several surveys have reached what could be unsustainable levels,” indicating that a reversal in sentiment could spell trouble for future market returns. The stock market’s performance in the coming weeks will be crucial. If recent breadth divergences cannot be rectified, it may suggest that 2025 will be more challenging than 2024 for investors. As Clissold puts it, “If the stock market cannot rectify recent breadth divergences in the next few weeks, it would suggest our concerns about a more difficult 2025 could come to fruition.”