In 2022, the S&P 500 dropped 19.4%, which was its worst performance since 2008 at the depths of the Great Recession period. It closed 2022 at 3,839.50, and several things on the horizon could knock it down again this year.
24/7 Wall St. Key Points:
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Several things on the horizon could knock the S&P 500 down this year.
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These include weak earnings from big tech companies and a surge of inflation triggered by stiff tariffs.
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Three things did the most damage in 2022. There was a renewed jump in COVID-19 infections in China, Russia invaded Ukraine, and the consumer price index rose over 8% during several months. The market has run up since then, as inflation has dropped sharply, the Federal Reserve has cut interest rates, and the war in Ukraine has become a smaller geopolitical problem. Additionally, earnings have been strong, particularly among large tech companies.
The S&P 500 has had a huge runup this year and stands at 5,812. That is 51% higher than the end of 2022.
What Could Make the S&P 500 Tumble?
Several things could make the market stumble in 2025. The most obvious is what often drives the market. Companies will need to post strong earnings. Since megatech firms drive most of the market, this means that Nvidia, Amazon, Alphabet, Meta, and Apple will need to deliver another year of extraordinary revenue and profit growth.
The Trump administration may impose tariffs on China, Mexico, and Canada. If the figures are as high as those floated already, they could trigger a wave of inflation. The threat is that the Mexican and Canadian tariffs could be as high as 25%. The two are America’s largest trade partners. The tariffs would hit, among other things, oil and autos.
Another issue is the debt limit, which is currently $36 trillion. The worry is that the United States will be unable to raise more money at lower interest rates. The weight of debt payments on the federal budget could create a growing strain. An increased debt limit might also allow Congress to approve more annual budgets that run deficits.
Furthermore, there are geopolitical risks. For the moment, the war in Ukraine is close to a stalemate. The conflicts in the Middle East appear less likely to draw U.S. troops to impose some level of order. Either of these could change quickly.
Could the S&P 500 drop sharply this year? The list of things that make that possible is long.
Prediction: These 3 Stocks Will Outperform the S&P 500 in 2025
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