Created on 27 January 2025

Every month YX Insights creates a summary update for the financial markets across equities, bonds, oil, gold, and crypto.

In this January update, we began by examining how the S&P 500 performed at the beginning of the year and its implication for the full year. We looked at the possibility of the 10-year yield going beyond 5%. We also provided an overview of the performance and outlooks for Oil, Gold, and Bitcoin.

Table of Contents

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

Where Is SPY Headed In 2025?

S&P 500 has got off a quick start this year, which is an encouraging sign for the rest of the year.

After 15 trading days, SPY was up 3.7%, its 7th best year in 30 years. While China’s DeepSeek AI narrative coincided with a large sell-off in the S&P 500 and Nasdaq 100 on Monday 27th, SPY is still in a comfortably positive territory of 2.3% YTD.

Out of the 19 years where SPY traded positively after 15 days into the New Year, only 4 years failed to show positive returns. Among these four negative years, the worst performance was a -5% return in 2018 (including dividends).

Moreover, this bull market is still very young, only 2 years old.

In the past 30 years, the shortest bull market we had was 2019-2021, 3 years that doubled the SPY.

The caveat is that three years of back-to-back 20%+ returns is rare - we last saw that only before the Dotcom bubble. Having achieved 26% and 25% returns in 2023 and 2024, getting another 20%+ year in 2025 would be a tall hurdle.

SPY’s Last-Twelve-Month P/E since 2004

The current valuation also calls for a more moderate return in 2025 versus the last two years.

SPY currently trades at 29.8x P/E multiple based on the last 12-month earnings. This is approaching the 2 standard deviations above the 20-year mean. The last time we saw the current valuation level was in June 2020, before market peaked 18 months later in December 2021.

The problem with fading expensive valuations is that the market can climb more expensively higher in the near-term, on which value investors would miss out.

Expectations for SPY in 2025

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