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The S&P 500 is experiencing a challenging year due to aggressive U.S. tariff policies and occasional ups and downs in Big Tech stocks.However, after slipping into a correction territory in April due to a heightened trade war saga, the S&P 500 has finally staged a remarkable comeback in May.
The key U.S. equity index has gained 15.6% over the past month (as of May 19, 2025). Even Moody’s recent downgrade of U.S. debt couldn’t dent the winning momentum of the S&P 500 (read: ETF Strategies to Follow on Moody's Downgrade of U.S. Debt).
Will April Correction Cause at Least 18% Return in Next 12 Months?
While tariff fears were blamed for the recent selloff, the market was likely due for a pullback after a strong run late last year and into early 2025. Either way, it presented a buying opportunity, just like most pullbacks and corrections do.
While declines are painful, they’re normal in bull markets—and often set the stage for strong recoveries. Every bear market in history has been followed by a new bull market. Since 1950, whenever the S&P 500 fell 10% in just two days (like what happened in April 2025), it has offered at least 18% returns over the next 12 months, with the highest being 59% (in 2020).
The S&P 500’s 10% crash within just two days has occurred six times since 1950. The past five corrections have resulted in a positive outcome within 12 months. On average, the S&P 500 has bounced back by 32.6% within the next 12 months, following all double-digit, two-day declines. We expect history to repeat itself this year.
Delve Deeper Into Valuation
The U.S. stock market entered 2025 at one of its priciest valuation multiples in history, when back-tested more than 150 years, per Motley Fool, as quoted on Yahoo Finance. The Shiller price-to-earnings (P/E) Ratio -- also known as the cyclically adjusted P/E Ratio, or CAPE Ratio -- has averaged a multiple of 17.24 since January 1871. In December 2024, it nearly hit 39.
Historically, Shiller P/E ratios above 30 on the S&P 500 have often preceded market declines of 20% or more. When volatility picks up, companies with premium valuations tend to get hurt first. The problem is that these pricey businesses are often responsible for leading the stock market's rally. And when these jewels take a hit, the entire market succumbs to a slowdown.
Mag-7 to Remain in Fine Fettle
This time around, stock market Jewels are “Magnificent Seven” or Big Tech stocks, which are thriving on their artificial intelligence (AI) euphoria. The AI boom is in fine fettle and will keep expanding no matter what happens on the tariff front.