Investing.com – Investors should expect some moderation in growth in the S&P 500 in 2025 after two years of over 20% expansion in the benchmark index, according to BTIG analysts led by Jonathan Krinsky.
Despite a somewhat dour ending to 2024, the main US indices all logged double-digit annual increases, with the S&P 500 in particular notching its best two-year performance since 1997-1998.
Much of the optimism was bolstered by the Federal Reserve’s decision to beginning slashing interest rates down from multi-year highs.
Policymakers have pointed with optimism to a waning in inflationary pressures since a peak in 2022, although some have flagged that this easing has cooled in recent months. Fed Chair Jerome Powell said at a press conference last month that while policy is in a “good place,” the central bank will now take a more “cautious” approach to further reductions.
Incoming President Donald Trump’s administration, plus a slew of victories for other Republican candidates in November’s crucial elections, have also boosted hopes that companies will benefit from a new era of looser regulations and tax cuts. Still, uncertainty continues to cloud over Trump’s plans to roll out both stringent tariffs as well as sweeping deportations — and whether these moves may rekindle inflation.
Elsewhere, a surge of interest around artificial intelligence has sparked a jump in several stocks exposed to the nascent technology. Nvidia (NASDAQ:NVDA) emerged as the largest global gainer in terms of market capitalization in 2024, thanks in large part to soaring demand for its AI-focused chips across a range of industries. The company added more than $2 trillion in market value in 2024, closing out the year at $3.28 trillion, giving it the second-highest valuation among the world’s listed firms.
BTIG’s Krinsky noted that while equity markets in the first half of 2024 were fueled mostly by the surge in mega-cap names like Nvidia, many investors had expected the breadth of these gains to broaden once the Fed started to cut rates.
However, Krinsky flagged that breadth, as measured by the percentage of stocks in the Russell 3000 index trading above the 200-day moving average, peaked in mid-July. By Dec. 30, less than 60% of the components in the S&P 500 were higher than their 200-day moving average — the weakest level since 2023.
“As always, a breadth breakdown is either a warning sign or an opportunity. We saw a similar set-up in late [20]21, and that was clearly foretelling underlying issues ahead of the [20]22 bear market,” Krinsky said.
“Conversely, similar set-ups in [19]96, [20]04, [20]14, and [20]18 were all opportunities ahead of strong rallies. Our base case at this point is that the recent divergence is foretelling some issues early in the new year. The rubber band between mega-cap growth and the rest of the market stretched too far, and some reversion is likely, with the winners catching down to the losers as some rebalancing and tax selling takes hold.”
He added that “after an initial shakeout,” there can be “some upside in the cyclical/value trade,” as long as macroeconomic data “continues to hold up.”
“While that might mean a less dovish Fed, ultimately strong data should be bullish for equities over time,” Krinsky said.
With this view in mind, here are some of BTIG’s top picks for the first half of 2025.
Bloom Energy Corp (NYSE:BE): “The stock had been in a steady downtrend for nearly four years from early ’21 through late [20]24. The gap higher in November appears to be a game changer, with strong upside follow through.”
Expedia Inc (NASDAQ:EXPE): “A big base from 2022-2024, but the stock broke out in November and has been consolidating for the last two months. If it can clear $192, it should test its prior all-time highs from early 2022 in the $210-$220 range.”
Globus Medical (NYSE:GMED): “After a multi-year bear market from 2021 -2023, the stock stabilized and has reversed that downtrend, finally exceeding its 2021 peak in December. While some further consolidation could be warranted, there is strong support in the 75-80 range.”
Health Equity (NASDAQ:HQY): “After a multi-month consolidation in the first half of [20]24, the stock broke out of a range in November with an upside gap. After pulling back to nearly fill the gap, it has once again started to move higher.”
On Holdings (NYSE:ONON): “The stock has had a very steady uptrend over the last six months, with price consolidating, then moving higher, and consolidating again. It has recently been consolidating since mid-November, and it looks poised for another upside move that should take it well north of $60.”
Regency Centers (NASDAQ:REG): “With a sideways trading range for much of 2022-2023, the stock started to break out last summer. After peaking in September, it has essentially gone sideways for the last few months. This creates an attractive entry point […]”
Block Inc (NYSE:SQ).: “The stock spent most of 2022-2024 in a sideways trading range. In November, it finally broke through that multi-year resistance around $90. After nearly trading up to $100, it has consolidated the breakout and is now poised to resume trending higher.”
Verona Pharma PLC (NASDAQ:VRNA): “The stock has had an extremely strong trend that is only six months old. The stock is up more than 4x since the May lows, but as long as the uptrend remains intact, we would stick with the stock.”