Investing.com -- As the bull market enters its third year, the Sevens Report sees little reason for bearishness despite stretched valuations and geopolitical risks.
Sevens said in a note that "there are positives such as solid economic growth, looming pro-growth policies from Trump and the Republicans, (likely) more rate cuts, and purportedly $7 trillion of cash on the sidelines waiting to be deployed."
Historical data is said to support the optimism. Sevens Report highlights that "going back to 1950, there were eight times where the S&P 500 delivered back-to-back 20% returns (not counting 2023 and 2024). The following year produced an average return of 12.3%, with positive performance in six of those eight cases."
The firm believes the pattern suggests the potential for continued gains, even after two strong years.
The report also references past performance during similar periods: "In the previous three instances where the S&P 500 went up by 25% in two straight years, the index was positive the following year two out of three times."
These instances underscore the potential for further market strength, even after significant gains.
Moreover, Sevens Report points out that investing at market highs has historically led to strong forward returns, with the S&P 500 setting 57 all-time highs in 2024.
They also note, "The S&P 500 has recorded modest gains of 5.5%, on average, during the 12 months following the initial cut of a Fed rate-cutting cycle," often doubling in the absence of a recession.
While acknowledging the improbability of another 20%-25% gain, the firm concludes that it "wouldn’t rule out another decent gain in 2025," suggesting that historical trends favor continued positive market performance despite recent strong returns.