Market strategists at major ETF firms are optimistic about the stock market rally continuing in 2025, expecting large tech stocks to keep generating solid earnings and stave off valuation concerns in the near term. We anticipate that US Large Cap equity can maintain its structural advantage over developed markets (DM) equities.
US companies continue to deliver on what the market values most — profitability and earnings growth, driven mainly by the technology sector and the so-called Magnificent 7, in particular, the State Street Global Advisors team said in an outlook piece. The ETF industry has seen a boom of new products in 2024, with new crypto funds raking in tens of billions of dollars, and leveraged single-stock funds seeing heavy trading volume. Still, the two most popular ETFs among investors in 2024 have been broad stock funds — the Vanguard S & P 500 ETF (VOO) and the iShares Core S & P 500 ETF (IVV). The two ETFs have brought in roughly $160 billion of inflows combined and have total returns of 29% year to date, according to FactSet. The buying of those broad stock funds comes despite concerns among Wall Street strategists and professional investors about market valuations, and the heavy weight of a handful of tech stocks in the indexes. Valuations could hurt long-term performance, but not necessarily 2025's numbers, according to Vanguard. Over the short term, our analysis suggests that if economic growth and earnings hold up, U.S. equities could sustain elevated valuations. However, as the horizon extends, growth and earnings impacts diminish, with valuations eventually dominating returns as a 'fundamental gravity,' the Vanguard outlook said. If earnings don't hold up, the gravity could have a faster impact. Any misstep in earnings, particularly from the top names, would be cause for concern, State Street sai