As we enter 2025, the S&P 500 index has captured the attention of investors on Wall Street with its climb to new record levels.
Last February, the upward momentum of one of the most important U.S. stock indices continued as it surpassed the 6,000‐point barrier for the first time in its history and recorded an all‐time high of 6,147 points.
This strong performance has raised investor optimism, but at the same time, it has led analysts to cautiously anticipate the index’s trajectory in the new year—especially in light of political and economic developments that could reshape the financial landscape.
With Donald Trump’s return to the White House, concerns have resurfaced over escalating global trade tensions as the U.S. President seeks to implement protectionist policies to support domestic industries.
These policies could lead to increased inflationary pressures, potentially forcing the Federal Reserve to keep interest rates at elevated levels for longer than anticipated.
As these changes accelerate—particularly with the beginning of March and rising recession fears—open selling of U.S. stocks on Wall Street has intensified, with major indices incurring significant losses and reaching their lowest levels in six months.
S&P 500 Heads for Retesting the Support Level at 5,000 Points
Despite the strong performance of the S&P 500 last year and in the early part of this year, successive changes in economic and political factors have led to a sharp correction—with expectations that this decline will continue to retest the support level at 5,000 points.
Fluctuations in monetary policy, trade tensions, and a decline in risk appetite are the key factors driving the index’s corrective downward trend.
Prolonged Tightening of Monetary Policy
If the Federal Reserve continues to keep interest rates elevated for longer than expected, it could slow economic activity and increase borrowing costs—putting pressure on corporate profits and negatively affecting investors’ appetite for stocks.
• Escalating trade tensions
• Declining profits of major Wall Street companies
S&P Loses Over $4 Trillion
The tariffs imposed by President Donald Trump have raised investor concerns, with fears of an economic slowdown triggering a sell-off in the stock market that resulted in significant losses from the S&P 500’s peak last month—when Wall Street was largely supportive of Trump’s agenda.
The S&P 500 closed on Monday 8.6% lower from its high on February 19, losing over $4 trillion in market value since then and approaching a 10% decline, which would constitute a market correction.
Trump’s Trade Policies
With Donald Trump’s return to the White House in 2025, his trade policies have already begun reshaping the economic landscape, directly impacting the performance of the S&P 500.
Since taking office, Trump has imposed new tariffs on imports from China, Mexico, and Canada—escalating global trade tensions and negatively affecting multinational companies listed in the index, such as Boeing, Caterpillar, and Microsoft, which rely on international markets for sustainable growth.
Despite these challenges, some sectors—such as energy and defense—have benefited from Trump’s policies, as his administration has focused on boosting domestic production and increasing military spending.
On the other hand, the imposition of additional tariffs has led to higher production costs, increasing inflationary pressures in the U.S. economy.
Consequently, the Federal Reserve has continued to pursue a tight monetary policy, resulting in higher borrowing costs—which has added further pressure on the stock markets.
Amid these developments, investors face uncertainty about the index’s future direction. If the trade war continues to escalate, it could lead to a further sharp decline in the markets.
Federal Reserve Outlook
In 2025, the Federal Reserve faces a delicate challenge in balancing monetary policy amid inflationary pressures and economic uncertainty.
Following the initiation of a quantitative easing cycle in the United States in September 2024—which saw three consecutive interest rate cuts—investors are closely monitoring the Fed’s policy directions this year.
The impact on the S&P 500 will be significant; any further rate cuts could channel liquidity into the stock market, supporting the index to reach new record levels—potentially even 7,000 points.
Conversely, if the Fed adopts a more hawkish stance or hints at another rate hike to curb inflation, it could trigger a strong downward correction—potentially testing the 5,000-point support level.
Investors are awaiting comments from Jerome Powell and upcoming Fed meetings, as future monetary policy will determine market direction in the coming months.
About the S&P 500 Index
The S&P 500 is one of the most important and well-known stock indices in the world and is considered the primary gauge of the U.S. stock market’s performance.
The index comprises 500 of the largest U.S. companies listed on the New York Stock Exchange (NYSE) and NASDAQ, making it a broad indicator that reflects the health of the U.S. economy and the performance of major companies across various sectors.
• History of the S&P 500: The index was launched on March 4, 1957, by Standard & Poor’s, becoming the first index to use the float‐adjusted market capitalization of publicly traded stocks rather than simply calculating an average of stock prices like the Dow Jones Industrial Average.
• Prior to the establishment of the S&P 500, Standard & Poor’s had been providing financial market indices since the early 20th century, launching in 1923 the first index tracking 233 U.S. companies, though it was not as large or influential as the current index.
• Over the years, the S&P 500 has become the benchmark for U.S. stock performance, reflecting major economic shifts—including financial crises, recovery cycles, and developments across sectors such as technology and energy.
How Important is the S&P 500?
• A benchmark for the U.S. market: The index reflects about 80% of the total market capitalization of U.S. stocks, making it more comprehensive and representative of the market compared to the Dow Jones Industrial Average, which includes only 30 companies.
• A standard for investors and financial institutions: Investment funds and exchange-traded funds (ETFs) use the S&P 500 as a benchmark for performance, and investors rely on it to assess market returns and compare their strategies.
• A measure of the U.S. economy: The S&P 500 is often used as a general indicator of the health of the U.S. economy, “the world’s largest economy.”
• Influences financial decisions and monetary policy: Central banks and financial analysts track the index when making decisions about interest rates and monetary policy, as its movements reflect investor confidence in the economy.
• Global impact: Its influence is not limited to U.S. markets; it also affects global market trends, as companies like Apple, Microsoft, and Amazon are global giants that impact the international economy.
What are the Components of the S&P 500?
• Composition: The S&P 500 consists of 500 large companies listed on the New York Stock Exchange (NYSE) and NASDAQ, representing the firms with the highest market capitalization in the United States.
• Key sectors within the S&P 500: The index includes all major economic sectors, with companies distributed as follows:
1. Technology Sector: The largest sector in the index, accounting for 28%, with leading companies including Apple, Microsoft, Nvidia, and Alphabet (Google).
2. Healthcare Sector: The second-largest sector at 13%, with key companies such as Johnson & Johnson, Pfizer, and UnitedHealth.
3. Financial Sector: Representing 12% of the index, with major companies including JPMorgan Chase, Bank of America, and Visa.
4. Consumer Staples: Accounting for 7% of the index, with prominent companies like Coca-Cola, Procter & Gamble, and PepsiCo.
5. Energy Sector: Making up 5% of the index, with leading companies such as ExxonMobil and Chevron.
6. Other Important Sectors: Communications, industrials, and real estate.
How are Companies Selected for the S&P 500?
• The company must be based in the United States.
• Its market capitalization must exceed $14.5 billion.
• It must have posted positive earnings in the last four quarters.
• The list of companies is updated periodically based on performance and market capitalization.
Factors Affecting the S&P 500 Index
The S&P 500 is a key indicator of the U.S. economy’s health and is influenced by several factors, including:
• Economic Growth: Strong growth in the United States boosts the performance of companies in the S&P 500, leading to higher stock prices and an increased index value.
• Inflation: High inflation can erode corporate profits, which may result in lower stock prices and a decrease in the index’s value.
• Interest Rates: Rising interest rates increase borrowing costs for companies and individuals, potentially slowing economic growth and reducing the index’s value.
• Geopolitical Factors: Wars, political unrest, and international tensions can affect investor confidence and cause significant market volatility.
• Performance of Listed Companies: Strong earnings and revenue growth from companies in the index help drive up stock prices and the overall index value.
• Investor Sentiment: Optimism among investors can lead to increased buying, while pessimism can trigger selling, both affecting the index.
• Technical Factors: Technical analysis and algorithmic trading also influence the movements and trends of the index.
Key Price Milestones for the S&P 500
• June 1932: The S&P 500 recorded an all-time low of 4.40 points.
• February 2025: The index reached an all-time high of 6,147 points.
• June 1932: It recorded its lowest ever closing level at 4.43 points.
• February 2025: It recorded its highest ever closing level at 6,144 points.
Best Performance of the S&P 500 in History
• 1954: The best annual performance ever, with a 45% increase.
• Q2 1933: The best quarterly performance ever, with an 86% increase.
• August 1932: The best monthly performance ever, with a 39% increase.
Worst Performance of the S&P 500 in History
• 1931: The worst annual performance ever, with a 47% decline.
• Q2 1932: The worst quarterly performance ever, with a 39% decline.
• September 1931: The worst monthly performance ever, with a 30% decline.
Factors Influencing Forecasts for the S&P 500
1. Macroeconomics:
• Economic Growth: Strong growth in the U.S. economy boosts the performance of companies in the S&P 500, driving the index upward.
• Labor Market: Falling unemployment and increased job opportunities can spur higher consumer spending and economic growth, enhancing the performance of S&P 500 companies.
• Moderate inflation can be positive as it reflects economic growth, whereas high inflation may lead to higher interest rates, increasing borrowing costs and pressuring corporate profits.
2. Federal Reserve Monetary Policies:
• Interest Rates: Rising rates increase borrowing costs for companies and individuals, which may slow economic growth and pressure corporate profits. Conversely, rate cuts boost spending and investment.
• Quantitative Easing Programs: QE measures, including the purchase of financial assets by the Fed, can increase market liquidity and support higher stock prices.
3. Government Fiscal Policies:
• Government Spending: Increased spending on infrastructure and services (an expansionary policy) can boost the economy and lead to a rise in the S&P 500.
• Tax Policies: Lower corporate taxes can enhance profits and attract investment, whereas higher taxes might negatively impact the performance of S&P 500 companies.
4. Geopolitical Conditions:
• International Tensions: Trade disputes—such as those between the U.S. and China—can cause significant market volatility. Economic sanctions and geopolitical crises also affect investor confidence.
• Policy Stability: Political stability and clear government policy expectations boost investor confidence and support the market.
5. Performance of Major Companies:
• Earnings and Financial Reports: The performance of companies in the S&P 500 directly affects the index. Strong earnings and revenue growth boost stock values and the index overall.
• Future Outlook: Positive expectations for future performance enhance investor confidence.
6. Market Trends and Investor Sentiment:
• Psychological Factors: Investor confidence and expectations play a significant role in market movements—both positive and negative news can lead to substantial volatility.
• Technical Trading: Technical analysis and trends, such as support and resistance levels, influence daily trading decisions.
7. Innovation and Technology:
• Technological Innovation: Leading technology sectors, including major tech companies in the S&P 500, can drive the index upward through rapid innovation and growth.
• R&D Investments: Increased investment in research and development bolsters the growth of tech companies within the index.
8. Unforeseen Events:
• Natural Disasters and Pandemics: Unexpected events like natural disasters or pandemics can cause significant market volatility, particularly in large U.S. financial markets.
• Global Economic Events: Economic crises in other parts of the world can impact U.S. markets due to global economic interconnectedness.
Frequently Asked Questions about the S&P 500
Is the Current Level of the S&P 500 Suitable for Investment?
After the S&P 500 entered a corrective decline aimed at testing the 5,000‐point barrier, we believe that investing in the index at this level involves an acceptable level of risk.
This investment opportunity becomes even stronger if the Federal Reserve expresses its intent to implement several interest rate cuts this year while keeping inflation and high prices in check.
How to Invest in the S&P 500?
There are several ways to invest in the S&P 500:
1. Exchange-Traded Funds (ETFs): ETFs are financial instruments that track the performance of a specific index—in this case, the S&P 500.
2. Individual Stocks: Instead of investing in a fund that tracks the entire index, you can purchase individual stocks of companies that comprise the S&P 500.
3. Mutual Funds: Some mutual funds, managed by financial professionals, primarily invest in stocks that make up the S&P 500.
4. Futures and Options: For more experienced investors, futures and options can be used to invest in the index.
Will the S&P 500 Crash in 2025?
It is unlikely and improbable that the S&P 500 will crash this year—especially since it includes only high-quality stocks closely tied to the performance of the U.S. economy. In cases where companies underperform, they are immediately removed from the index and replaced with stronger ones.
Technical Analysis of the S&P 500
The weekly chart of the S&P 500 shows how the index hit the resistance of a long-term ascending channel and began to retrace downward from there, initiating a downward wave that could extend in the short to medium term to reach the 4625.00 area after overcoming all obstacles that were hindering the price during its decline.
The first obstacle was the support level at 5855.00. As seen in the chart above—and after its break was confirmed last week—the index is now headed toward negative targets of $5400.00 and then $5135.35 as subsequent key milestones, after successfully surpassing $5525.00 (which represents the 23.6% Fibonacci retracement level of the rise measured from 3492.70 to 6150.70). Consequently, the index is currently in a corrective downward trend.
On the other hand, the index is also being influenced by a previously completed ascending wedge pattern, as shown in the daily chart below, which contributes to the ongoing downward correction.
The support found at the first correction level may force the index to retest the broken support of the ascending channel before resuming its decline, and it needs to hold above 5750.00 to ensure the continuation of the downward trend in the coming period.
On shorter time frames, the U.S. index has attacked the instantaneous ascending channel support to gain additional backing for the expectation of a prevailing downward trend in the near term. Additionally, the index has completed the formation of a double top pattern—a strong bearish signal that supports the likelihood of continued decline and further correction.
Therefore, the aforementioned factors support the continuation of the downward trend in the immediate and short term, noting that a break below 5525.00 would trigger an additional correction aiming for 5135.35—eventually converging with the distant target mentioned at the beginning of the report of 4625.00.
Conversely, it is crucial to note that a breach of 5750.00 would halt the corrective downward scenario and return the index to an upward trajectory, as it attempts to recover and target the recently recorded high of 6150.70 as an initial major goal. Furthermore, surpassing this peak would prompt the index to resume a long-term upward trend, potentially reaching new gains up to the next positive milestone of 6500.00.
