S&P 500 Closes Third Consecutive Winning Year as Bull Market Extends Into 2025

• Why Is the S&P 500 Defying Gravity?
• Tech Valuation Reset: Buying Opportunity or Trap?
• Defense Stocks Soar Amid Global Tensions
• Election Year Volatility Looms
• FAQs: Your S&P 500 Questions Answered

Wall Street’s favorite benchmark, the S&P 500, is wrapping up another stellar year with gains, marking its third straight annual advance. Historical trends, Federal Reserve policy shifts, and sector rotations paint an intriguing picture for 2025 – but risks lurk beneath the surface. Here’s why analysts remain cautiously bullish despite stretched valuations and geopolitical uncertainties.

Why Is the S&P 500 Defying Gravity?

Since adopting its current FORM in 1958, the S&P 500 has closed higher in three out of every four calendar years. What’s more impressive? The index posted 20%+ gains in 19 different years while only suffering declines in 17. This historical outperformance aligns with current market conditions – the Fed has already cut rates by 175 basis points over 15 months with more easing expected. FactSet data shows 57.5% of S&P 500 stocks now carry "Buy" ratings, the highest since February 2022 (right before a 9-month bear market).

Tech Valuation Reset: Buying Opportunity or Trap?

The recent sideways action has cooled overheated sectors. AI darlings lost their "must-own" status, speculative frenzy eased, and the Nasdaq 100 now trades at 26x P/E – below its two-year average. Its premium over the S&P 500 sits at a six-year low. "This looks like healthy digestion after the AI mania," notes BTCC market strategist Liam Chen. "But selectivity matters – companies needing actual revenue growth will separate from story stocks."

Defense Stocks Soar Amid Global Tensions

One surprising winner? Aerospace/defense. The S&P 1500 Aerospace & Defense Index rockets 41% YTD – its best run since 2013 – fueled by military budget hikes and aviation demand. European arms makers like Rheinmetall (+67%) and Saab (+49%) joined the party. Stateside, RTX and Northrop Grumman delivered double-digit gains thanks to missile defense contracts. But beware: Kratos trades at 100x forward earnings after a 40% Q3 plunge – "These multiples assume perpetual war," warns a Morgan Stanley note.

Election Year Volatility Looms

History suggests caution. The S&P 500’s 87% three-year return through October ranks in the top 5% of all comparable periods – but follow-up gains typically moderate. Midterm election years often bring prolonged stagnation (think 2018’s 20% plunge). With 2024’s presidential race heating up, policy uncertainty could spark turbulence. "Gridlock might actually help markets," suggests Goldman’s research team, "but defense stocks could face headline risk if military spending debates intensify."

FAQs: Your S&P 500 Questions Answered

How much has the S&P 500 gained this year?

The S&P 500 ROSE 16.2% in 2025, while the equal-weighted version gained 10.7% – showing mega-caps still drove performance. Without Nvidia, Alphabet and Broadcom, returns would’ve been ~33% lower.

What’s the outlook for 2025?

Analysts expect double-digit earnings growth, but much depends on Fed policy and whether the "soft landing" holds. The BTCC team notes: "Valuations aren’t cheap, but momentum could carry stocks higher until rate cuts stall."

Are defense stocks still a buy?

While geopolitical tensions support the sector, sky-high multiples for firms like Palantir (190x earnings) suggest caution. Traditional contractors like Lockheed (16x P/E) offer relative value.