Red hot S&P 500: a chance to get rich in 2025?

The S&P 500 surged 23% in 2024, representing one of the best years in modern history. Investors are hungry for more in 2025.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

The flag of the United States of America flying in front of the Capitol building

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Value-focused investors may be a little concerned by the S&P 500’s strength over the past two years. The index level has surged from below 4,000 to around 6,000 over the past 24 months. This is an increase of approximately 50% in just two years.

Too hot for some investors

This rapid growth has led to high valuations and potentially unrealistic expectations for future earnings. The S&P 500 is currently trading at 23 times forward earnings, or around 20 times when excluding the Magnificent 7, which are considered expensive on an absolute basis. The Magnificent 7 are Apple, Microsoft, Alphabet (Google’s parent company), Amazon, Nvidia, Meta (formerly Facebook), and Tesla.

Of course, hot valuations can be justified by earnings growth, and S&P 500 earnings are expected to grow by more than 12% in 2025, driven by a strong US economy, artificial intelligence (AI), and possible tax cuts from the incoming US president.

Should you invest £1,000 in BP right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BP made the list?

See the 6 stocks

Concentrated growth

In a remarkable display of market concentration, the Magnificent Seven stocks dominated the S&P 500’s performance in 2024. This elite group — — accounted for more than half of the index’s impressive 23% gain.

While most of these stocks appear expensive on face value, they’re forecasted to play an outsized role in our future. They dominate areas like AI, humanoid robotics, autonomous driving, and even intra-planetary life.

Head for the ‘smaller’ stocks

Several analysts and investors are saying the place to look for value is the mid-caps, as well as smaller companies. Mid-cap stocks are not typically traded on the S&P 500, but the term can be used fairly liberally here. The point is, with investors focused on the Mag 7 and JPMorgans of the world, smaller companies have been overlooked.

What’s more, these companies are more likely to benefit as interest rates fall, owing to debt repayments and credit needs. Across 13 rate cut cycles since 1973, the S&P 500 has seen positive annual returns after the first rate cut. That’s a good sign.

So, is there a chance to get rich with the S&P 500 this year? Well, given some of the rich valuations, investors may be able to generate outsized returns with some carefully picked stocks. It might not be immediate riches, but it could put an investor on the path to building long-term wealth.

One to consider

One stock worth considering is North American insurance provider Allstate (NYSE:ALL). A smaller member of the S&P 500, it presents a compelling investment opportunity, particularly for value-focused investors.

The insurer is performing well, with a 14.7% revenue increase to $16.6bn in Q3 2024 and a net income of $1.2bn. More importantly, Allstate’s valuation metrics are attractive. It has a forward price-to-earnings ratio of 11.6 times, which is 5.6% below the sector median and 27.3% below its five-year average.

In recent years, the company’s strategic focus on improving auto insurance profitability has yielded positive results, with a combined ratio of 94.8 in Q3 2024. However, investors should be wary that Allstate is operating in a competitive market, notably in personal lines of insurance. In the long run, this could put margins under pressure.

And finally, with a 2% dividend yield and a 14-year history of dividend growth, Allstate also offers potential for both income and capital appreciation.

But there may be an even bigger investment opportunity that’s caught my eye:

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

JPMorgan Chase is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. James Fox has positions in The Allstate Corporation and Nvidia. The Motley Fool UK has recommended Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »