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 virtually 5% since a mid-February peak.
This implies it’s already midway in direction of a correction (a decline of 10%, or extra). May a bear market — a chronic interval of share worth declines higher than 20% — be on the playing cards? Listed below are my ideas.
The case for
Trying round, I feel there are two major 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 right now (4 March).
China and Canada have already retaliated, and Mexico could properly comply with go well with. This has sparked fears of a world commerce warfare.
In accordance with Goldman Sachs, President Trump’s tariffs may result in a 1-2% decline in US company income in 2026. In a worst-case situation, the US may slip right into a recession (the so-called ‘Trumpcession’).
Second, the S&P 500 stays extremely valued. In accordance 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 may abdomen tariffs and give attention to different elements. For instance, tax cuts, deregulation, the continued synthetic intelligence (AI) revolution, and a probably 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 threat, it’s additionally true that these tech companies (barring Tesla) proceed to develop income 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 top of this yr. That may be a stable 11% enhance from right now’s degree, if achieved.
Personally, I don’t see a bear market taking place. However corrections, bear markets, and even crashes are a traditional a part of the investing cycle. In different phrases, nothing to concern.
Googol!
Both means, I feel Alphabet inventory appears nice worth right now. Shares of the Google and YouTube mum or dad firm are buying and selling at a P/E a number of of 21 (and subsequently a reduction to the S&P 500).
Now, one motive for this is likely to be that Google faces anti-trust challenges. So there’s an out of doors threat right here that Alphabet will get damaged up.
Nevertheless, it’s additionally potential that Alphabet could possibly 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 totally autonomous rides final yr. And it’s simply getting began!
Extremely, Alphabet now has seven completely different merchandise with greater than 2bn month-to-month energetic customers.
- Google Search
- Android
- Chrome
- Gmail
- Google Maps
- Google Play Retailer
- YouTube
The sheer quantity of knowledge this ecosystem generates is mind-boggling. Fittingly, Google’s identify comes from ‘Googol’, which is a 1 adopted by 100 zeros. These large datasets present the corporate with big benefits in AI and quantum computing analysis.
I feel Alphabet inventory’s price contemplating.
