Can the Roaring Twenties Continue?

Following a year characterized by a resilient economy, the start of an easing campaign from the Federal Reserve, a strong job market, and roaring market returns of over 20%, many investors want to know: Can this momentum continue in 2025? Early returns in 2025 have been mixed, but history suggests there are reasons for bulls to remain optimistic.

Swingin' stocks: 20% gains two years in a row isn't a reason to be bearish

AI and tech led the S&P 500 to a 25% gain — marking the first time we saw back-to-back yearly gains of 20% or more since the late nineties. It's understandable that investors may feel uneasy after such strong market performance, but history suggests that this isn't a reason itself to be bearish.

For context, consider that prior to 2024, the S&P had experienced consecutive annual gains of over 20% eight times since 1950. In six of the eight instances, stocks were higher again the following year, and the overall average return across all eight years was more than 12%.¹

Markets shimmy during rate cutting jitters

Last year, markets responded favorably to the Federal Reserve's rate cuts, and in 2025, the expectation is that this trend will continue, even if it comes with a few bumps along the way. Ultimately, the path of markets this year will likely hinge on the reason for future changes in monetary policy. For example, is the Fed responding to data indicating a potential economic downturn, or are the cuts a benign action to gradually bring their policy rate back to neutral levels?

Our research shows that during previous rate cutting cycles, the S&P 500 has performed well — with mid- to high-single digit average returns 12 months after that initial cut. However, a closer look reveals that outcomes have varied greatly depending on whether the economy entered a recession or not. When the economy managed to avoid a recession, stocks saw a significant upside, nearly 20% in the 12 months following the initial cut.²

As of this writing, the economic backdrop for 2025 shows no signs of an imminent recession, and the market is behaving similarly to previous nonrecessionary cutting cycles. While this paints an optimistic picture, it's important to remember that conditions can change quickly. That said, long-term investors shouldn't be deterred by potential short-term market volatility, as five years later, stocks have historically been higher, regardless of where the economy landed.

Is a bubble brewing in 2025?

Despite a relatively calm 2024, it's not likely to be long before we're reminded that market drawdowns are a normal occurrence — even during healthy bull markets. As we enter 2025, many investors are hesitant to get excited about the positive momentum, citing factors like rich valuations and high levels of concentration in indices and drawing comparisons to the dot-com bubble in 2000.

These concerns are not unfounded, as the S&P 500 is currently trading at a material premium to its long-term average. However, while it's something investors should be aware of, it doesn't necessarily mean that we're in a “bubble.” Today's market leaders, the “Magnificent 7,” have been a driving force behind the S&P 500's returns over the past two years and are currently profitable businesses with strong market positions — a key difference we didn't see during the dot-com era.

However, nearly all calendar years see stocks decline at least 5%, and more than half see double-digit drawdowns, so the odds are we still very well may see a material pullback before markets ultimately move higher.³ It's also very possible that returns over the next decade will be lower than the previous decade. That said, over the long-term, most investors will be best served by tuning out the noise, avoiding the temptation to time the market, and focusing on ensuring that their portfolios are adequately prepared and diversified to weather any storm.

Strong client conversations are the bee's knees

At Lincoln, we understand that it can be challenging to weather uncertainty in the market. We leverage our team of investment professionals and industry-leading asset management partners to bring timely insights and deep-dive perspectives that can help lead to more informed investment decisions.

You can start some valuable discussions with insights from Lincoln Financial and our network of asset management partners. Market Intel Exchange is client-approved and features information that can help answer many client questions. Our team would love to support you as you reach out to your clients. You can contact your Lincoln representative at 877-533-0265.

About the Author:

Jayson Bronchetti serves as the primary investment officer to Lincoln’s Board of Directors and senior management team on all investment-related matters. He is responsible for the executive leadership, oversight and strategic direction of more than $300 billion in assets across both the general account portfolio and the separate account mutual fund complex. Bronchetti is also the chairman of the board of directors of the Lincoln Funds Trust and the Lincoln Variable Insurance Product Trust family of over 100 mutual funds. As enterprise CIO, Bronchetti leads a team of portfolio managers, research analysts, risk managers and client investment strategists. The team is focused on portfolio construction, asset allocation, due diligence of sub-advisors and development of equity, fixed income and alternative investment strategies. Bronchetti also oversees Lincoln Financial’s Market Risk Management team, which is responsible for the company’s $100 billion variable product hedging programs. In addition, Bronchetti is responsible for oversight of the company’s Chief Sustainability Office and is a director on the board of the Lincoln Financial Foundation, which is responsible for the company’s philanthropic efforts focused on financial wellness, youth education and human services.

To read other blog content like this, visit Lincoln's informed financial professional blog.

¹Lincoln Financial Q1 2025 Market Intel Exchange, page 27.

²Lincoln Financial Q1 2025 Market Intel Exchange, page 32.

³Lincoln Financial Q1 2025 Market Intel Exchange, page 30.

Past performance does not guarantee or predict future performance.

Lincoln Financial is the marketing name for Lincoln National Corporation and insurance company affiliates, including The Lincoln National Life Insurance Company, Fort Wayne, IN, and in New York, Lincoln Life & Annuity Company of New York, Syracuse, NY. Variable products distributed by broker-dealer/affiliate Lincoln Financial Distributors, Inc., Radnor, PA. Securities and investment advisory services may be offered through nonaffiliated entities.

This material is provided by The Lincoln National Life Insurance Company, Fort Wayne, IN, and, in New York, Lincoln Life & Annuity Company of New York, Syracuse, NY, and their applicable affiliates (collectively referred to as “Lincoln”). This material is intended for general use with the public. Lincoln does not provide investment advice, and this material is not intended to provide investment advice. Lincoln has financial interests that are served by the sale of Lincoln programs, products, and services.

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Can the Roaring Twenties Continue?