Why the S&P is likely to be more moderate after consecutive above-average years By Investing.com
Investing.com — It’s poised for moderation in the coming year after consecutive periods of above-average returns, according to Oppenheimer analysts.
This expected slowdown is consistent with historical trends observed after significant market rallies and reflects the dynamics of bull market cycles.
The past two years have been exceptionally strong for the S&P 500, with gains exceeding historical averages.
However, the report notes that such steady progress often leads to periods of reduced momentum.
Historically, when an index has posted a 40% or more cumulative return over two years, the following year’s performance has typically been poor, averaging just 3.7%, with a positive return seen in only half of these cases.
Oppenheimer noted that the S&P 500’s current position, about 27 months into the bull market that began in October 2022, is approaching the 32-month median duration seen in past cycles since 1932.
While this does not suggest an immediate end to the bull market, it does imply that the index may be approaching a stabilization phase rather than continued strong growth.
Other impact studies emphasize this perspective. Breaks to all-time highs, such as those seen in 2024, often lose their effectiveness in driving gains in the second year.
According to Oppenheimer’s analysis, returns in the 12 to 24 months after such breakouts average just 1-2%, well below the historical average of 9-10%.
The brokerage’s next-year projection for the S&P 500 suggests a balanced outlook, with an expected return of 6% and a target level of 6,400, between a bullish scenario of 6,700 and a bearish scenario of 6,000.
This reflects a mix of optimism for sustained growth and caution about potential moderation based on long-term performance patterns.
While the risk of a market top appears limited in the immediate future – given the strong internal breadth and the absence of significant warning signals – Oppenheimer stresses the importance of prudence.
They predict a year characterized by corrections and consolidations rather than dramatic declines, which is consistent with historical patterns of declines in positive years.
On average, positive years have seen peak-to-trough declines of around 11% over nine weeks, which is in stark contrast to the more difficult bear market conditions.
