Incredibly, the S&P 500 has delivered total returns of 25%+ in four out of the last six years. However, 2025 hasn’t been as fruitful, with the benchmark index falling almost 5% since a mid-February peak.
This means it’s already halfway towards a correction (a decline of 10%, or more). Could a bear market — a prolonged period of share price declines greater than 20% — be on the cards? Here are my thoughts.
The case for
Looking around, I think there are two main issues that could push the index into a bear market. For starters, the 25% US tariffs on imports from Canada and Mexico, and a new 10% levy on goods from China, started today (4 March).
China and Canada have already retaliated, and Mexico may well follow suit. This has sparked fears of a global trade war.
According to Goldman Sachs, President Trump’s tariffs could lead to a 1-2% decline in US corporate profits in 2026. In a worst-case scenario, the US could slip into a recession (the so-called ‘Trumpcession’).
Second, the S&P 500 remains highly valued. According to the Vanguard S&P 500 ETF, the index’s price-to-earnings (P/E) ratio’s 27. That’s a high multiple, historically speaking, which might start spooking investors.
The case against
Alternatively, investors might stomach tariffs and focus on other factors. For example, tax cuts, deregulation, the ongoing artificial intelligence (AI) revolution, and a potentially a more efficient US government.
Meanwhile, the ‘Magnificent Seven’ — Apple, Amazon, Alphabet (NASDAQ: GOOGL), Meta, Microsoft, Nvidia, and Tesla — now account for a third of the S&P 500’s value. While that presents concentration risk, it’s also true that these tech firms (barring Tesla) continue to grow profits strongly.
Last year, their collective earnings increased by 36%, which was far higher than the rest of the S&P 500 (just 4% growth). That figure is set to be lower this year, but brisk growth’s still expected.
Returning to Goldman Sachs, its chief equity strategist sees the S&P 500 rising to 6,500 by the end of this year. That would be a solid 11% increase from today’s level, if achieved.
Personally, I don’t see a bear market happening. But corrections, bear markets, and even crashes are a normal part of the investing cycle. In other words, nothing to fear.
Googol!
Either way, I think Alphabet stock looks great value today. Shares of the Google and YouTube parent company are trading at a P/E multiple of 21 (and therefore a discount to the S&P 500).
Now, one reason for this might be that Google faces anti-trust challenges. So there’s an outside risk here that Alphabet gets broken up.
However, it’s also possible that Alphabet could be worth more in pieces. Google Search/Android, YouTube, and Google Cloud would each likely command huge market valuations. Meanwhile, its robotaxi division, Waymo, did over 4m fully autonomous rides last year. And it’s just getting started!
Incredibly, Alphabet now has seven different products with more than 2bn monthly active users.
- Google Search
- Android
- Chrome
- Gmail
- Google Maps
- Google Play Store
- YouTube
The sheer amount of data this ecosystem generates is mind-boggling. Fittingly, Google’s name comes from ‘Googol’, which is a 1 followed by 100 zeros. These massive datasets provide the company with huge advantages in AI and quantum computing research.
I think Alphabet stock’s worth considering.
