The S&P 500 ended the year with a 23 percent return. Half of that return came from seven large technology stocks. The average stock in that index, a better measure of the overall market, gained 11 percent. That’s in line with the S&P 400 Mid-Cap Index’s 12 percent return and the Russell 2000 Small-Cap Index’s 10 percent return.

That said, history books will show the S&P 500 has gained over 20 percent two years in a row, which has only happened five times in the last 100 years. The first of such rallies came in the late 1920s right before the Great Depression (gulp). Two strong years occurred again in the 1950s. Amazingly, the S&P 500 rose over 20 percent four years in a row starting in 1995!

Will two strong years mean the market is in big trouble like it was in the late 1920s, or does the strong bull run have several years remaining as it did in 1995-99? Instead of expecting a big move up or down, I believe the S&P 500 will only have small nominal gains in 2025. Why? I’m simply acknowledging that its P/E ratio is high, especially when it comes to technology stocks.

The S&P 500 trades for 22.5 times forecast earnings, a level last seen in 2020 and again in 1999. And the forecasted earnings are expected to grow 14.8 percent. Earnings might surprise to the upside under a more business friendly administration, but 14.8 percent is a high bar. Because of high valuations, Goldman Sachs only expects a 3 percent annual return over the next 10 years. Three percent? I’ll bet the over.

Keep in mind, however, that “it’s a market of stocks, not a stock market.” If you remove a handful of well-known technology stocks then most stock valuations are near their historical average. Many sectors, such as healthcare, are well below their historical valuations.

While I may sound a bit pessimistic, a lot can go right. Inflation is the key. If it falls to the Fed’s two percent target then both long- and short-term rates should also fall. That would be bullish for stocks and bonds. Then there is AI. Companies will start to see the benefits of AI, much as they did with the internet. Finally, if president-elect Trump measures his success by the stock market, as he did in his first term, then expect a very business friendly administration. Some analysts call this the “Trump Put.”

David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.