Veteran analyst updates S&P 500 prediction after record rally originally appeared on TheStreet.
How high could stocks go?
That’s the question most investors are asking after the S&P 500 and Nasdaq Composite have delivered mouth-watering gains since President Donald Trump paused reciprocal tariffs on April 9.
The S&P 500 has marched 24% higher, without much of a pause, while the technology-heavy Nasdaq Composite, which is weighted heavily toward the Magnificent 7, has climbed over 33%.
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Those returns are impressive, especially considering that the S&P 500’s average annual return since 1957 is about 10%, and the market was flirting with bear market territory only a little over two months ago.
Stocks’ rapid recovery isn’t uncharted territory, though. The market has experienced sharp drops in the past, and how the S&P 500 performed after those declines may offer insight into how much gas for stocks may be left in the proverbial tank.
Longtime veteran Wall Street analyst Sam Stovall, who has been navigating stocks for decades, recently offered thoughts on how the rest of the year may play out.
There have been plenty of reasons to worry that stocks could tumble in 2025 amid a weakening economy, including:
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Sticky inflation
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Declining GDP growth
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Growing unemployment
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Lackluster confidence
Inflation is down substantially from its 8% plus peak in 2022, but progress lately has been limited. The Personal Consumption Expenditures (PCE) index showed core inflation, excluding volatile energy and food prices, rose 2.7% in May. That was up from 2.6% in April and matched the rate from last September.
Related: Morgan Stanley reboots stock market forecast after rally
Many think the inflation picture will worsen in the coming months. Since February, President Trump has implemented 25% tariffs on Canada, Mexico, and autos, plus a 30% tariff on China and a 10% baseline tariff on all imports.
Given that so much of what we buy, from clothing to electronics, is made overseas, many think businesses will pass along at least some of these higher costs to consumers this year.
The prospect of higher prices isn’t welcome news for already cash-strapped consumers and businesses, who may retrench spending, slowing our economy.
There’s already some evidence that economic activity is in trouble. First-quarter GDP declined 0.5%, and the World Bank estimates that full-year GDP in the U.S. will be just 1.4%, down from about 2.8% last year.
The situation has led to an uptick in layoffs, which has increased the unemployment rate. Over 696,000 workers have been laid off through May, up 80% year over year, according to Challenger, Gray, & Christmas. The unemployment rate is 4.2%, up from its low of 3.4% in 2023.
Risks that inflation reasserts itself and unemployment increases have taken a toll on consumer confidence. While confidence is better than in April, the Conference Board’s Expectations Index is 69, handily lower than the 80 that often indicates a looming recession.
Nevertheless, the stock market is forward looking, and since April, investors believe the worst of the risks are behind us and arguably got priced into stocks when they nose-dived this spring.
Sam Stovall is a been-there-done-that Wall Street veteran analyst. He’s built a long career analyzing the markets, including serving as managing director and chief investment strategist at S&P Global for over 27 years, before becoming chief investment strategist for CFRA, a major research firm.
Related: Rare event could derail S&P 500 record-setting rally
Stovall has a reputation for connecting the dots between the past and the present. He considered past sharp sell-offs and what happened after them and came away bullish.
“The recent correction recovered all that was lost in only 80 calendar days, versus the traditional 236 days for all 25 corrections (declines of 10.5% to 19.9%) since WWII,” said Stovall in a note to clients. “Investors shouldn’t be too surprised by this speedy recovery, due to the swiftness of the initial selloff.”
The V-shaped recovery after the dramatic drop reflects a market that had become very oversold, very quickly. The baskets that have performed best since April’s low have perhaps, unsurprisingly, been the groups that got hit the hardest.
For example, the information technology sector, which comprises high flyers like Nvidia, is up 41% from the lows. The average return for the three worst-performing sectors — information technology, consumer discretionary, and communication services — is up 32%.
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Those gains could continue, says Stovall, but he did offer a relatively tempered outlook for the third quarter.
“The S&P 500 posted the weakest quarterly return, eking out only a 0.1% advance in Q3,” said Stovall. “Five of its 11 sectors posted declines, led by communication services, consumer discretionary, energy, and materials.”
The third quarter’s lackluster historical returns could mean it’s a bit tougher sledding for stocks short term, but Stovall still thinks that stocks overall can deliver bigger returns through year’s end.
“Encouragingly, history indicates that quick drops to the -10% threshold typically result in a shorter and shallower total decline, followed by a more rapid recovery,” said Stovall. “As a result, investors look forward to continued gains of between 6% and 10%, as was typically the case following declines of up to 20% since WWII, before slipping into a new decline of 5% or more; they just have to survive the traditionally challenging third quarter.”
Related: Analyst sends alarming message after S&P 500 hits all-time high
Veteran analyst updates S&P 500 prediction after record rally first appeared on TheStreet on Jun 30, 2025
This story was originally reported by TheStreet on Jun 30, 2025, where it first appeared.