The U.S. equity market has endured a volatile 2025 marked by unpredictable trade policy, inflation fears, and credit rating downgrades. Yet, despite the turbulence, the S&P 500 has just achieved a historic technical milestone, posting a three-month gain of over 25%—a rare event witnessed only six times in the last 75 years. Market analysts and historical data now suggest this surge could set the stage for a powerful rally over the coming year.
Highlights
S&P 500 surged more than 25% over three months for just the sixth time since 1950
Past instances have resulted in a 100% success rate for positive 12-month returns
The average return a year after similar rallies is 21.4%, versus the long-term average of 9.2%
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A Volatile 2025: Tariffs, Inflation, and Credit Downgrades Drive Market Uncertainty
In 2025, market sentiment has swung dramatically amid significant macroeconomic headwinds. President Donald Trump’s shifting tariff and trade strategies were primary catalysts. On April 2, the U.S. announced a sweeping 10% global tariff and introduced reciprocal tariff hikes on dozens of countries, sparking a sharp 10.5% two-day decline in the S&P 500—its fifth-largest in 75 years. Markets briefly rebounded after a temporary pause in these tariffs, but the unpredictability of U.S. trade policy continues to unsettle Wall Street.
Highlights
Trump’s global tariff and reciprocal trade policies created extreme short-term market swings
S&P 500 plunged 10.5% between April 2 and 4, marking one of the sharpest two-day drops in decades
A 90-day pause in tariffs helped major indexes post record point gains shortly afterward
Market Concerns Deepen With Elevated Valuations and a Downgraded U.S. Credit Profile
The market is also grappling with historically high valuations. The Shiller price-to-earnings ratio, a key long-term metric, surged to 38.89 in December—its third-highest level since 1871—and remains above 38. Historically, when this ratio sustains levels above 30, it has signaled heightened vulnerability. Simultaneously, Moody’s downgraded the U.S. sovereign credit rating to AA1, the final major agency to move away from a AAA rating, reflecting concerns over America’s ballooning national debt.
Highlights
The Shiller P/E ratio has remained above 38, signaling expensive valuations not seen since previous bubbles
All previous long stretches above 30 on this metric led to corrections of 20% or more
Moody’s downgrade of U.S. debt underscores long-term fiscal risks
Historic Three-Month Rally in the S&P 500: What It Means for the Year Ahead
Despite the ongoing uncertainty, markets have rebounded sharply. From April 9 onward, the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite entered a sustained rally. The S&P 500’s 26% three-month rise is one of the strongest since 1950. According to Carson Group’s Ryan Detrick, in the five past instances where the S&P 500 posted similar gains, the index delivered an average 21.4% return over the following 12 months—more than double the long-term average.
Highlights
The S&P 500 is up 26% over three months, a feat achieved only five times previously
Historical average return after such rallies is 21.4%, compared to the typical 9.2% annual gain
Momentum-driven rallies tend to extend further, especially following deep corrections
Historical Patterns Suggest Bull Markets Outlast Bear Phases
Analysis from Bespoke Investment Group reveals that bull markets tend to be significantly longer than bear markets. Since 1929, the average S&P 500 bear market has lasted 286 days, while bull markets endure around 1,011 days. If this historical trend holds, the current rally—triggered by oversold conditions, easing inflation expectations, and speculative optimism—may still be in its early stages, despite macroeconomic noise.
Highlights
S&P 500 bear markets last on average 286 days, while bull markets stretch nearly three times longer
The current market rally may be entering a prolonged uptrend if past patterns repeat
Investor sentiment could strengthen further if inflation remains contained and rate cuts proceed
