Will the good times for stocks stay rolling? Likely, yes, in the face of some daunting obstacles.
A year ago, this column predicted that stocks probably would continue their winning ways in 2025. Up to now, that upbeat prognosis has held true, with equities powering past a Washington-induced April chill. The U.S. is completing the third year of a bull run, with the S&P 500 climbing almost 90%. (FactSet Research dates the start of the bull market at Oct. 12, 2022.)
Of course, no one knows whether some X factor will appear to halt positive market momentum and shove investments into a hole. Recall last April, when President Donald Trump first announced his planned tariffs—and investors freaked out.
The heartening news is that stocks recovered their equilibrium from that presidential pronouncement and then some. This has been the story of 2025, and with luck stocks will keep up their welcome performance. Factors benefiting stocks include a relatively low inflation rate, a decent (if not roaring) economy and artificial intelligence’s popularity.
The S&P 500 this year is up 14.5% through Thursday, having shaken off the April panic, as the tariffs thus far appear not to have harmed growth, or if so, just marginally. A poll of registered investment advisors (RIAs) this summer found cautious optimism, with almost two-thirds of respondents expecting the S&P to rise 6% to 9% over the ensuing 12 months. The poll, by advisory firm Security Benefit (with data from Greenwald Research), found scant RIA expectations for a near-term recession.
“We’re in the middle innings of the bull market,” says Joseph Quinlan, head of CIO market strategy for Merrill and Bank of America, in an interview. He points to strong stock buybacks and high-income consumer spending as propellants for the equities surge. Indeed, stockholders have spent over $1 trillion on share repurchases over the past 12 months through September, per Morningstar, and consumer spending is healthy, although more so for wealthier Americans, a BofA study found.
Certainly, some have worried about whether inflation will rise meaningfully, especially as the tariffs take hold. The Federal Reserve has an annual 2% target for inflation, but that has proven elusive. Thus far, the Consumer Price Index has stayed just below 3% annually (the next CPI release, covering September, is on Oct. 15, if the shutdown doesn’t thwart it). A survey by the New York Federal Reserve Bank showed that households believe inflation will tick up slightly above 3% over the next year, hardly a baleful scenario.
Up ahead, macroeconomic conditions appear favorable, on balance. Macro, after all, typically drives the market. The Fed believes that gross domestic product will maintain a steady, modestly improving pace going forward, clocking a median annual increase of 1.6% this year, 1.8% in 2026 and 1.9% in 2027.
You’d think that the U.S. government shutdown would kneecap stocks. But as Sam Stovall, CFRA’s chief investment strategist, points out in a research note, the market has tended to “drift higher” in previous Washington closures. The thinking apparently is that no lasting damage will occur and the stoppage will be temporary.
To date, the market has largely shrugged off the shutdown: The S&P climbed 0.58% on Wednesday and Thursday closed down 0.34%. Overall, since the shutdown started, the index has inched up 0.62%.
One big reason for optimism about the market: Lower interest rates soon are a strong possibility. Recently released minutes of the Federal Reserve’s policymaking board in mid-September indicated that the Fed is tilted toward two more cuts this year, one-quarter percentage point each. In that same meeting, the central bank moved to slice its benchmark rate by a quarter-point, to a 4.0% to 4.25% range, its first reduction of 2025.
The most-discussed catalyst behind much of the market growth lately is artificial intelligence. The widespread fascination with AI’s promise has been stoked by a massive buildout of data centers. Meta Platforms and Oracle are among the tech giants pouring vast sums into this arena. The gargantuan capital spending has doubled GDP this year, by some estimates. Meta’s stock is up 25% in 2025 and Oracle’s 79%.
A large question looms about whether all these outlays will pay off, and skeptics declare that the enthusiasm is reminiscent of the 1990s dot-com boom, which ended badly. Profits from AI are hard to find, as of yet. Still, the craze over the dot-com industry was not wrong, just early. Since that bust, a third of a century ago, the Web has gone on to dominate the world’s culture and commerce.
Long-term investors should take heed. In the meantime, stocks should remain rewarding for investors. Nobody knows for how long, but the immediate future looks pretty good.