The leading U.S. stock market indices, including the S&P 500, the Nasdaq 100, and the Dow Jones Industrial Average, would require a robust finish to the year to remain flat. Although such an outcome is not impossible, it typically occurs in upward-trending years rather than during a downturn, as seen currently.
Following President Donald Trump’s announcement of a comprehensive tariff policy over a week ago, global markets were thrown into disarray, resulting in significant losses for the U.S. stock market, amounting to trillions. This development has led to a downturn in the major indices for the year, triggered by negative reactions to the new trade policy.
The selloff triggered by Trump’s policy shift reversed what had been promising market conditions earlier in the year. Investors and analysts had anticipated continued solid returns, despite a slowdown from the record highs of the previous two years. Trump’s election initially sparked market optimism, with stocks soaring as he was perceived as a pro-business leader.
However, the situation has now changed, with markets declining due to the uncertainty Trump has introduced into the U.S. economy upon his return to the White House.
To recoup the losses incurred so far this year, the S&P 500, Nasdaq, and Dow would have to mount a notable rally. Although not unheard of, such a rally typically occurs in prosperous years.
Contrary to this scenario, a strong year in 2025 appears unlikely. In the wake of the market crash induced by Trump’s tariff announcements, major Wall Street banks have adjusted their annual economic forecasts to reflect the ongoing downturn, with some banks predicting a recession. This is further compounded by slumping bond markets and a depreciation of the U.S. dollar.
By the end of the previous week, the S&P 500 had fallen by 8.6%, a sharp decline compared to the impressive gains seen in 2023 and 2024, which marked the best two-year stretch since 1998. To return to a neutral position by the end of the year, the S&P 500 would need to increase by 11.4% from its closing price on April 11 to December 31.
While such growth is not uncharacteristic for the S&P 500 from April to December, occurring 18 times since the index’s modern inception in 1957, it typically happens during bull markets and not during downturns like what is expected for 2025. The stock market’s best performance in such years reached a 43.4% annual return, while the average was 28%.
Historically, a market crisis early in the year has, at times, been followed by substantial gains, as witnessed in 2020, a year marked by the COVID-19 pandemic. The S&P 500 registered its best April-to-December performance on record that year. The circumstances in 2020 were different, driven by a public health crisis rather than a trade policy shift.
The Nasdaq and Dow face similar recovery challenges, requiring significant gains to offset current losses, a feat that typically occurs in flourishing markets.
Analysts now anticipate a poorer market performance in 2025 compared to earlier forecasts. In December 2024, the Wall Street prediction for the S&P 500 was a median price target of 6,625, implying a 12.9% increase for 2025, based on the opening price on January 2. Recently, multiple banks have reduced their forecasts below the initial median, with some predicting a decline for the year.
In 2025, the Nasdaq has decreased by 10.9%. From February, when the index reached over 22,000, it would need to rise 12.2% to end the year without a net loss. Historically, such rallies are not uncommon but occur predominantly in positive market years.
The Dow, experiencing less severe declines, is down by 5.1% in 2025. It would need to rise 5.4% to avoid a loss by year-end. Historically, the Dow has managed such recoveries in 35 instances since 1958, with a single instance in 1984 where it ended the year negatively despite a mid-year rally. Typically, these years coincide with strong growth, averaging an 18.6% return.
This article was initially featured on Fortune.com.
