5 Reasons the S&P 500 Could Rebound Strongly in 2025

Key Points

• The S&P 500 pulled back because of uncertainty and an earnings outlook reset. Earnings are expected to continue growing but at a slower pace.
• Analysts forecast an average 45% increase for the top five S&P stocks.
• Institutional buying was strong in Q1, providing a floor for the index to rebound. 

As much uncertainty as there is about tariffs, the economy, and the S&P 500 NYSEARCA: SPY, the signs point to a strong rebound this year.

While uncertainties exist, the underlying fundamentals remain solid, including labor market growth, wage strength, and consumer health. 

The takeaway is that S&P 500 earnings continue to grow and support a healthy capital return outlook.

Here are five more reasons why the index will rebound in 2025 and could take it to fresh all-time highs. 

1. The Top Five Stocks Are Indicated to Rise by 45%

The top five stocks in the S&P 500, including Apple NASDAQ: AAPL, Amazon NASDAQ: AMZN, Google NASDAQ: GOOGL, Microsoft NASDAQ: MSFT, and NVIDIA NASDAQ: NVDA are forecasted to rise an average of 45% by year’s end. That is a significant gain compounded by bullish analyst trends suggesting the 45% target could be low.

Those trends amount to increased coverage for the group, firming sentiment, a bullish bias to the Moderate Buy/Buy rating, and a rising price target. The most significant stock in the group, NVIDIA, is forecasted to rise by 60% at the consensus and could top 80% by year’s end. Such an event will boost investor confidence and could spill over into other stocks and market sectors. 

2. The Top Five Stocks Are 30% of the S&P 500

At least one portion of the 2024 narrative is unquestionably intact. The market remains concentrated in the top stocks, with the top five S&P 500 names by market cap comprising about 30% of the index. The top seven are slightly more, and the top ten amount to nearly 40%, and all come with similar stock price forecasts.

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The takeaway is that at 40% of the market, we can expect the S&P 500 to rise by $0.40 on the dollar for every $1 of net increase for this group. Assuming it amasses a 45% gain, the S&P 500 could rise more than 20%. A 20% gain is sufficient to set a new high but, more importantly, would put the market on track to reach the high targets indicated by market activity in January. Those are near S&P 7,400—a 30% gain from the index's April open. 

3. A Market Reset, Not a Market Reversal 

A reset of expectations is among the causes of the decline in index Q1. The uncertainty, persistent inflation, and higher-for-longer interest rates cut into the earnings outlook but did not destroy it.

Although the outlook has dimmed, the market continues to expect solid growth in 2025, with a high single-digit pace in Q1, accelerating to a peak near 11.5% in Q3 and YOY acceleration compared to 2024 and then again in 2026. 

The point is that earnings are growing, capital returns are safe, and the capital return growth outlook is positive. The S&P 500 is expected to increase its dividends by a mid-single-digit figure and buybacks at a faster rate, providing incentives for investors and a tailwind for the market. 

4. Institutional Buying Spikes in Q1 2025

Institutional activity in the top five S&P 500 stocks and the Magnificent Seven is bullish. The institutions bought on balance in the back half of 2024 and ramped their activity in Q1 2025. In most cases, institutional activity sets a multi-year high while increasing the total ownership.

The bottom line is that institutions have been buying robustly for the last nine months and are likely increasing their holdings in early Q2, providing a solid market base. 

5. With Max Uncertainty, Even Bad News Can Be Good

So, there are risks in the market, but the market is otherwise bullish. In this environment, with uncertainty at its maximum, even bad news can provide a bullish catalyst because the market expects the worst: less bad equals good.

As it is, the S&P 500 price action in early April suggests the bottom of the pullback was reached in late March, and the next index movement will be higher.