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Attempting to come up with the proper words to sum up markets in 2025 has been much more difficult than I thought it would be. There have been so many headlines, ranging from the Trump administration’s unveiling of its trade and tariff policy, to stubbornly high inflation, to political gridlock leading to the longest U.S. government shutdown in history, to an artificial intelligence “bubble,” to a weakening labor market that again has many calling for a recession. There are so many more headlines, but you get the point.
With all that said, wouldn’t you know it? Markets are on pace to finish 2025 with another year of stellar returns. The S&P 500 index is wrapping up its third consecutive year of gains with a whopping total return of ~67%. As of this writing, it’s up ~17% in 2025.
Now, this seemed downright impossible in early April, as the index was down ~18% when the administration announced its original tariff policy. As seen in the chart below, the S&P has since rallied ~35% in a mere eight months! We experienced something similar in 2020 during the COVID-19 sell-off and subsequent rally. Once again, another rally that nearly no one saw coming. Notice a theme here?
With the amount of uncertainty we’ve faced and continue to face, how can this be happening again? Well, it’s not that hard to explain. Markets go up far more often than they go down. OK, I am being a bit cheeky here, but it’s true. There are always a million things to worry about, and generally speaking, the economy and stock market take them in stride and the worst-case scenario is avoided.
Now, there are instances, like the dot-com crash (2000 to 2002), the Great Financial Crisis (2008 to Q1 2009), and the inflationary surge (2022), that lead to immense pain for markets, but notice that only three incidents have really tripped up markets over the past two and a half decades! Sure, we get pockets of volatility every year, but full-blown sell-offs that last an entire calendar year are just not that common—yet many feel they’re always right around the corner.
The irony is that buying markets at all-time highs is (a) very common and (b) a rewarding investment strategy! As seen in the chart below, over the past 50 years, buying the S&P 500 at all-time highs has led to higher average returns than all the other periods over one, three, and five years.
If an investor is patient and properly diversified (equities, bonds, and cash), it’s extremely hard to lose money over the long run. Since 1976, a 60/40 portfolio has never experienced a three-year period of losses in both equities and bonds. This fact should tell you that while there are always things to worry about, the markets should not be high on the list, assuming you are properly diversified and have a sound financial plan in place.
As we turn the page to a new year, many of the same concerns linger. No one knows where markets are heading, but one thing is certain: Over the long run, markets will continue to climb higher in the face of countless uncertainties, and we just have to accept it.
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