S&P 500 Enters 2025 In Rare Technical Territory: Why This Analyst Expects 'Challenging' Year Ahead

The S&P 500 entered uncharted territory in 2024, rallying 23.3% without a single daily close below its 200-day moving average.

In a note shared Thursday, Bank of America analyst Stephen Suttmeier highlighted that this was only the 15th occurrence in nearly a century, with those years averaging an annual return of 25.4%.

However, history suggests that 2025 may not be as smooth for the index, as the probability of revisiting the key technical level dramatically increases.

The last time the S&P 500, as tracked by the SPDR S&P 500 ETF Trust SPY, fell below its 200-day moving average occurred in November 2023. The 200-day moving average is currently at 5,569, suggesting the S&P 500 would need to decline by 6% from its current levels to breach this critical technical support.

Chart: S&P 500 Holds Above 200-Day MA Since November 2023

What Does The 200-Day Moving Average Tell Us?

The 200-day moving average is a widely followed technical indicator used to gauge the longer-term trend of the market. When the S&P 500 consistently trades above this level, it is often seen as a sign of market strength.

Conversely, a break below it can signal the onset of volatility or bearish momentum.

Suttmeier highlighted that years like 2024, when the index avoids closing below this critical support level, are rare and tend to deliver strong returns.

Since 1928, the S&P 500 has achieved this milestone 15 times, and in those years, the index averaged a 25.4% annual gain.

However, the following years tend to be far more erratic.

2025: Likely to Test the 200-Day MA

The S&P 500 has historically struggled to repeat back-to-back years of avoiding the 200-day MA.

The last time this happened was in 1954 and 1955. This makes 2025 a pivotal year, with Suttmeier suggesting that the index will likely trade below its 200-day MA, which begins the year near 5560.

“The years following a rally that avoids the 200-day MA are often more challenging,” Suttmeier said.

On average, returns in these subsequent years plummet to just 0.9% (median 0.6%), with the index closing higher only 50% of the time.

Maximum returns for those years peaked at 26.7%, but declines were severe, with losses as steep as 38.6% in 1937.

Historical Patterns and Presidential Cycles

Adding to the potential headwinds, 2025 marks the first year of a new presidential cycle.

According to historical data, Presidential Cycle Year 1 tends to be one of the weaker years, especially following strong gains in Years 3 and 4 of the cycle, like the 2023-2024 rally.

Under these conditions, the S&P 500 has risen 63% of the time in Year 1, delivering an average return of 1.9%.

While the index has shown the capacity for significant gains—like 31% in 1997—it also recorded its worst single-year decline of -38.6% in 1937.

The Secular Bull Market: Mid-Cycle Or Late Stage?

Despite the potential challenges for 2025, the S&P 500 remains in the midst of a secular bull market, according to Suttmeier, now entering its 12th year since breaking above its 2000 and 2007 peaks in April 2013.

Secular bull markets, which represent long-term upward trends, have historically lasted 16-20 years, such as the periods from 1950-1966 and 1980-2000.

Bank of America suggests the current secular bull market could extend until 2029 or beyond, though dips like the 2020 pandemic sell-off or a potential test of the 200-day MA in 2025 are likely to occur along the way.

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