The Zhitong Finance App learned that with the launch in December, investors have ushered in a festive atmosphere during the holiday season, but they also need to prepare for the possibility that the market will cool down after the holidays. After experiencing strong performance in November, the S&P 500 index continued to rise slightly on the first trading day of December. The market seems to be ready for the “Christmas market,” and historical data shows that this strong year at the beginning and first half of the year often comes to a good end.

Adam Turnquist, chief technical strategist at LPL Financial, pointed out that since 1950, the average increase in the S&P 500 index in December was 1.6%, and 74% of the time ended with positive earnings, making it one of the most stable months of the year. However, he cautioned that this increase is usually concentrated in the middle and late stages of the month. Turnquist said, “Historical data shows that the S&P 500 usually fluctuates less in the first half of December, and real upward momentum often starts on the 11th trading day.”

Although the current bull market may not be over yet, the market may face challenges in January, especially after the president's inauguration day. Once post-election excitement gives way to policy implementation, markets may have to face realities that do not match expectations. For example, the market is currently showing a lukewarm impact on the tariff policy, but if the tariff policy is actually implemented, it will put upward pressure on consumer prices and inflation.

Robert Teeter, chief investment strategist at Silvercrest Asset Management, pointed out that the new tariff policy may cause US domestic prices to rise by 0.5%, while other strategists predict that this increase may be as high as 1.5%. He warned that this increase in prices may once again heat up inflationary pressure that had gradually subsided, especially in the post-pandemic period.

22V Research analyst Gerard MacDonell believes that even if President Trump does not fully implement his proposed high tariff policy, the market may still face several shocks from “Trump's serious implementation of tariffs.” He added: “Even implementing only a quarter of the proposed tariffs would disrupt the current low commodity inflation situation, and this indicator currently looks better than the level of inflation in the service sector.”

Higher inflationary pressure could limit the room for the Fed to cut interest rates further, while dampening market optimism. Larry McDonald of The Bear Traps expressed concern: “The current market sentiment is too optimistic. Investors are ignoring potential risks and blindly pricing the linear benefits of Trump's policies. However, the road ahead is not an easy one, and we have reduced our exposure to volatile stocks.”

Cam Hui, an analyst at Humble Student of the Markets, said that the current price-earnings ratio of the S&P 500 is 22 times, which is already at a high level by historical standards. This means that the market needs to rely on profit growth rather than valuation expansion to drive further growth. He predicts that S&P 500 returns in 2025 are likely to remain stable or only show a low single-digit increase.

Although this forecast sounds a bit lackluster compared to the strong 26% increase in 2024, considering that the bull market usually slows in the third year, this forecast is in line with historical patterns. Furthermore, a slight increase is still a better outcome compared to no earnings.