The stock market enters 2025 looking something like the Kansas City Chiefs. The S & P 500 is coming off consecutive 20% annual gains, the Chiefs were winners of the past two Super Bowls. Fans of both are rabid for a three-peat. Yet in each case, the offense has been less dominant, the wins have been squeakers rather than routs and the path to another trophy appears narrower, if still navigable. The market equivalent of the Chiefs’ mediocre record against the point spread is the average stock’s stagnation since summer’s end, the S & P 500 Equal-Weight Index sitting at September levels after its 6% pullback from a post-Thanksgiving high. The benchmark market-cap-weighted S & P 500 – the more important one for capturing aggregate portfolio values – is off less than 3% from its record level and in the past two months has consolidated while bouncing three times off its pre-election peak. .SPX 1Y mountain S & P 500, 1 year Friday’s brisk, if perhaps belated, 1.1% rally finally saw the index respond to oversold conditions that had built up over weeks of sloppy market breadth and particular pressure on the cyclical parts of the market that are sensitive to rising bond yields. Election rally unwind Industrial stocks, banks and the small-cap Russell 2000 all fell some 8% in December, a rather comprehensive unwind of the reflex post-election rally that implicitly bet on a policy-enabled economic acceleration. The existence of a handy playbook from after the 2016 election of Donald Trump proved something of a trap. The simplistic lessons from back then were to favor real-economy and reflation plays and to assume the market could ignore an erratic policy-making process if help on taxes and regulation came before high-friction trade restrictions. But, as noted here two months ago , the starting point in 2024 was not as ripe for such a sustained rotation, and beyond that the burst higher in cyclical plays ran right into another rollover in the economic-surprise dynamics. It remained a solidly growing U.S. economy exiting 2024 for sure, yet one that still has to demonstrate that it can withstand 10-year Treasury yields rising a full percentage point toward 4.6% even as the Federal Reserve has cut rates by as much and – as noted – the macro data trends have slipped relative to expectations. The crucial question as 2025 gets rolling is whether this all reflects a consequential change in character of this market or simply yet another technical, valuation and sentiment reset that prevented the tape from getting more dangerously overextended while refilling the reservoir of skepticism that bull markets draw from. There’s some credence to the idea that recent weeks’ selling pressure was something of a pulling-forward of the modest payback that history suggests should be expected for this month. Tough January? January performance has tended to be poor after a 20% annual gain in the S & P 500. Years after an abundance of record highs (2024 had 57) have likewise been tougher and the first year of a new president’s term tends not to be the most rewarding. These are mere atmospheric preconditions rather than active storm systems, but reason enough to keep expectations in check and the recent action in context. Wall Street’s official expectations, of course, lean toward aggressive optimism, at least relative to recent years. The median sell-side strategist target of 6600 would represent an 11% run from here for the S & P 500, and the least optimistic target (from UBS) is still for a respectable 7.7% gain. Among economists, the consensus a year ago was for a 50% chance of a 2024 recession, while current recession odds are down near long-term floor readings. That said, December’s downside chop has helpfully drained some optimism from the usual investor surveys in recent months and turned the options-speculator hive a bit less aggressive. Tesla is 16% off its peak in two weeks and MicroStrategy has shed more than a third of its value since late November, giving the adrenaline-addled true-believer crowd something to think about. An interesting twist to the universal Wall Street bullishness on the S & P 500 is that nearly all professional investors are calling for the mega-cap leaders to surrender their role as dominant market drivers. If this group were to stay flattish as a group, the 70% or so of S & P 500 market cap represented by the other 493 stocks would need to soar collectively by some 50% to take the index toward the consensus year-end index target of 6600. I’ve argued several times that a broader market, with smaller stocks driving the index at the expense of the Big Seven, is not necessarily a safer or more stable one. The way the Magnificent Seven acts as both offense in a momentum-fueled tape and defense with macro jitters rise has benefited index investors. Rotation among the heavyweights and the pipsqueaks has been a key feature of this bull market, and one reason last year saw a maximum 8.5% pullback in the S & P on the way to a 23% ultimate gain. And one of the positives of the past year on this front is the more diverse action within the Mag Seven, with individual members going their own way to a degree, allowing some to cool off and reload while others support the index. Microsoft has now been dead money for almost 11 months. Nvidia hasn’t been able to get escape velocity above its June 2024 high. Does this mean the market is rethinking the “no brainer” status of the obvious early AI beneficiaries? Or is it the market allowing fundamentals to catch up to elevated valuations? The huge tech platforms are due to spend a stunning quarter-trillion dollars in the coming year on AI-related infrastructure, funding most of it from ready cash and incoming cash flow. Investors to date have largely rewarded this aggression, happy to see a huge proportion of that spending land on Nvidia’s top line, half of which will drop into net income, upon which the market places a 33 P/E multiple. Any radical rethink of this happy self-reinforcing cycle in 2025 would be a tricky challenge for the market to face, though the evidence of such a shift in thinking is still mostly anecdotal and incomplete. This is just one among several debates that have been brought into focus during the mast month’s market churn: The case for continued U.S. economic exceptionalism is strong to the point of near-universal acceptance. But does that mean a rampaging rally in the U.S. dollar won’t cause capital-markets stress? A go-slow Fed is generally preferable to one urgently slashing rates to rescue the economy. But will longer-term rates escape their range to the upside and further pinch housing activity, or will bond buyers finally get aggressive in capturing fatter inflation-adjusted yields soon? As noted, stocks late last week finally found some traction, and an oversold rally probably has some headroom above no matter what, even if the all-time-high level near 6100 looks to many chart readers as a formidable barrier in the near term. For all the concerns and questions aired above, if projected corporate earnings growth near 15% is even in the correct ballpark, it’s hard to see the broad market getting in too much lasting trouble, with credit conditions still firm. Policy-making drama could surely get spicy but investor hope for “growth-friendly” measures will be hard to dislodge. The market might not be the juggernaut it was the past couple of years and there are no guarantees of victory, but how much would you comfortably bet against the Chiefs this month?