April 21, 2025
In 2022, Wall Street predicted stocks would rise 5%. Stocks fell 18%.
In 2023, for seemingly the first time ever, Wall Street predicted stocks would fall. Instead, the S&P 500 soared 26%.
In 2024, Wall Street aimed too low again, forecasting the S&P 500 would hit 4,860. But the market blew past that by over 20%.
Now in 2025, Wall Street has done a complete U-turn. Every major firm said stocks will rise.
Wall Street is bad at predictions.
This collective universal foolishness should set off alarm bells because the stock market runs on expectations. And when everyone expects gains, those expectations become harder to beat.
But wait, there’s more reason for caution in 2025.
While making stock market forecasts based on election cycles may be voodoo, stocks have followed the four-year presidential cycle reliably over the past few administrations.
The first quarter of a new presidential cycle is typically rocky. On average, stocks gain 0.1% during the first three months of a new president’s term as markets and investors adjust to new policies.
So, this month’s selloffs shouldn’t be a surprise. In fact, they’re healthy and necessary.
Look again at those prior year returns. For perspective, the average annual gain for the S&P 500 is around 10%.
This recent volatility is actually healthy. I’d argue it would be worse if stocks jumped 20% again this year. We’d be in bubble territory and likely ripe for a big crash somewhere down the line.
Coming into 2025, the S&P 500 valuation was at the highest levels we’ve seen since June 2000. Things needed to cool off, and that’s exactly what’s happening.