Strategists from Ned Davis Research state that this year's record consecutive gains in the U.S. stock market may indicate that investors need to become cautious.

In a report on Monday, the research firm pointed out, $S&P 500 Index (.SPX.US)$ 2024 has recorded unprecedented gains, with the benchmark index reaching 54 historical closing highs since January.

So far this year, the Federal Reserve's interest rate cuts, the ai boom, and business-friendly promises like Trump’s tax cuts and deregulation have been tailwinds for U.S. stock investors.

However, strategists indicate that historically, a year filled with new records often leads to poor stock market performance in the following year, suggesting that the outlook for 2025 faces pressure.

They noted that since 1928, in years when the s&p 500 index reached over 35 historical highs, the benchmark index's median roi in the following year was only 5.8%, below the long-term average of 8%.

In years when the s&p 500 index set at least 50 historical highs, the median roi of this benchmark index for the following year was -6%.

However, in such cases, the US stock market does not always decline. For example, in 1996, the roi of the s&p 500 index was 20%, even though the previous year saw 77 historical highs.

However, the company noted that the surge at that time was primarily driven by the internet plus-related productivity boom, which boosted the economy and maintained low inflation rates.

The strategist wrote, "An important reminder from momentum research is that the stock market does not go up forever. Perhaps ai will drive another round of productivity boom and profit growth, thus keeping inflation and Federal Reserve policy benign. But history shows this is the exception, not the norm."

The company stated that othertechnical indicatorsalso indicated weakness in 2025. The strategist pointed out that the breadth of the stock market remains very narrow, with most gains concentrated in relatively few companies.

"(The breadth) continuously narrowing will make it more difficult for the stock market in 2025," they added.

Wall Street is generally bullish on the stock market outlook for next year, but most forecasters expect the roi to be lower than this year. The s&p 500 index has risen 27% since January and is expected to achieve double-digit growth for the second consecutive year in 2024.

However, due to the high valuations of large cap stocks, other strategists take a more cautious outlook on the US stock market. According to a recent report from Yardeni Research, some technical indicators suggest that the valuation of the s&p 500 index is hovering at extreme levels.

Meanwhile, according to the latest investor sentiment survey from AAII, 39% of investors indicate they are bearish on the stock market for the next six months, which is the most bearish sentiment recorded in this survey since last year.

Editor/Rocky