Extremely, the S&P 500 has delivered whole returns of 25%+ in 4 out of the final six years. Nevertheless, 2025 hasn’t been as fruitful, with the benchmark index falling nearly 5% since a mid-February peak.
This implies it’s already midway in direction of a correction (a decline of 10%, or extra). Might a bear market — a protracted interval of share value declines better than 20% — be on the playing cards? Listed here are my ideas.
The case for
Wanting round, I feel there are two foremost points that would push the index right into a bear market. For starters, the 25% US tariffs on imports from Canada and Mexico, and a brand new 10% levy on items from China, began as we speak (4 March).
China and Canada have already retaliated, and Mexico might nicely observe swimsuit. This has sparked fears of a worldwide commerce conflict.
In keeping with Goldman Sachs, President Trump’s tariffs may result in a 1-2% decline in US company earnings in 2026. In a worst-case state of affairs, the US may slip right into a recession (the so-called ‘Trumpcession’).
Second, the S&P 500 stays extremely valued. In keeping with the Vanguard S&P 500 ETF, the index’s price-to-earnings (P/E) ratio’s 27. That’s a excessive a number of, traditionally talking, which could begin spooking traders.
The case in opposition to
Alternatively, traders would possibly abdomen tariffs and deal with different components. For instance, tax cuts, deregulation, the continuing synthetic intelligence (AI) revolution, and a doubtlessly a extra environment friendly US authorities.
In the meantime, the ‘Magnificent Seven’ — Apple, Amazon, Alphabet (NASDAQ: GOOGL), Meta, Microsoft, Nvidia, and Tesla — now account for a 3rd of the S&P 500’s worth. Whereas that presents focus danger, it’s additionally true that these tech corporations (barring Tesla) proceed to develop earnings strongly.
Final yr, their collective earnings elevated by 36%, which was far greater than the remainder of the S&P 500 (simply 4% progress). That determine is about to be decrease this yr, however brisk progress’s nonetheless anticipated.
Returning to Goldman Sachs, its chief fairness strategist sees the S&P 500 rising to six,500 by the tip of this yr. That will be a strong 11% enhance from as we speak’s degree, if achieved.
Personally, I don’t see a bear market occurring. However corrections, bear markets, and even crashes are a standard a part of the investing cycle. In different phrases, nothing to concern.
Googol!
Both approach, I feel Alphabet inventory seems nice worth as we speak. Shares of the Google and YouTube mum or dad firm are buying and selling at a P/E a number of of 21 (and due to this fact a reduction to the S&P 500).
Now, one motive for this could be that Google faces anti-trust challenges. So there’s an out of doors danger right here that Alphabet will get damaged up.
Nevertheless, it’s additionally potential that Alphabet might be price extra in items. Google Search/Android, YouTube, and Google Cloud would every doubtless command big market valuations. In the meantime, its robotaxi division, Waymo, did over 4m absolutely autonomous rides final yr. And it’s simply getting began!
Extremely, Alphabet now has seven totally different merchandise with greater than 2bn month-to-month lively customers.
- Google Search
- Android
- Chrome
- Gmail
- Google Maps
- Google Play Retailer
- YouTube
The sheer quantity of information this ecosystem generates is mind-boggling. Fittingly, Google’s title comes from ‘Googol’, which is a 1 adopted by 100 zeros. These huge datasets present the corporate with big benefits in AI and quantum computing analysis.
I feel Alphabet inventory’s price contemplating.
