After an epic run that spanned more than two years, the stock market took a well-deserved breather to close out 2024 -- and the timing made investors nervous. After climbing to new record highs in early December, the S&P 500 (^GSPC -0.29%) stumbled, even missing out on the highly anticipated Santa Claus rally. This resulted in much wailing and gnashing of teeth as many feared the current rally was on its last legs.
However, the tide has once again turned, and things are beginning to look up as we embark on 2025. Despite the market's recent brief respite, the S&P 500 has sent three bullish signals that the current bull market has much further to go.
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1. The first five days indicator
During the first five days of 2025, the benchmark index generated a positive return, up 0.47%. While that might not sound like a big deal, market historians celebrated.
Going back to 1950, the market gained ground in 48 of those years, and the full-year returns were higher in 81% of the cases, according to Ryan Detrick, chief market strategist for financial services company Carson Group. Furthermore, during those positive years, the stock market gained 14%, on average, easily outpacing the average gain of 9.5%.
If historical precedent holds true, this marks the first positive indicator of 2025.
2. A new record high
The S&P 500 set a new record high on Thursday, buoyed by several high-profile financial reports and the potential for future interest rate cuts. The benchmark index brought its total gains to 4% so far this year (as of this writing).
This might not seem like a big deal, but market strategists are already looking ahead to next week and another historical indicator -- the January Barometer. This indicator looks at the correlation between the market performance in January and what that means for the rest of the year. Seasoned investors may recognize the proverb, "So goes January, goes the year."
First uncovered by Yale Hirsch of the Stock Trader's Almanac in 1972, the January Barometer suggests that when stocks gain ground in January, the chances that the rest of the year will be bullish improve. Detrick notes that when January is positive for stocks, the market continues to gain ground 86% of the time, generating additional returns of 12%.
While there are no guarantees, if the market continues along its current trajectory, the rest of the year could be profitable for investors.
3. Post-election bump
Another stock market indicator follows the market performance on the heels of a U.S. presidential election. Going back as far as 1928, in the 12 months following the election, the stock market returned 11.5%, on average, during the previous 24 election cycles, from 1928 to 2020, generating positive returns 71% of the time.
Furthermore, in years that generated gains, the S&P 500 (and its predecessor, the Composite Index) returned 20.5% on average. This suggests that, barring unforeseen economic developments or a black swan event, the market's momentum could continue.
The fine print
Truth be told, no one knows for sure where the market will end up when 2025 comes to a close. That said, and given the historical precedents, there's a good chance the S&P 500 has further to climb.
Chances are also good that the stock market will fall into correction territory -- falling between 10% and 20% at some point over the next year. To be clear, no one can predict a correction, at least not with any degree of accuracy, myself included. Even though I expect a correction, I also believe it will be short-lived and the S&P 500 will still end the year in the plus column.
So, what does all this mean for everyday investors? Wall Street's expectations seem to suggest a bullish year, as analysts' consensus estimates are calling for the S&P 500 to gain 14.8% in 2025.
That said, all this shouldn't make any difference to long-term investors. It simply doesn't matter what the S&P 500 does over the next few weeks or months, but what it does over years and decades. History offers a clear lesson there, as well. Over the past 50 years, the stock market has returned 10% annually, on average, making it the most reliable path to wealth generation the world has ever known.
That's why investors should buy shares in the best stocks they can find or settle into a solid exchange-traded fund and wait out the daily volatility while the market does the heavy lifting.
