What Is the S&P 500?
The S&P 500 tracks 500 of the largest publicly traded US companies in the stock market. It is considered a benchmark for the overall stock market health and covers about 80% of the total US equity market value. When investors talk about “the market,” they often mean the S&P 500. The index is weighted by company size (market capitalization), so giants like Apple and Amazon have a bigger impact on its moves than smaller firms.
Recent Performance and Momentum
The table below shows the S&P 500’s strong 24.5% gain in 2024. It also illustrates the index’s swing to a YTD decline of -3.65% as of 5 May 2025 (after a brief +4.58% YTD peak in February). The index’s long-term trend is still upward, but 2025 has been volatile so far.
S&P 500: YTD Performance (Jan to May 2025)
Source: FE Analytics. All indices are total return in US dollars. Past performance is not a reliable indicator of future performance. Data as of 5 May 2025.
The S&P 500 reached its highest point ever during February 2025 (4.58%) after two successful years in 2023 and 2024. The index dropped by more than 15% when the US introduced new import tariffs during early April because investors worried about a trade conflict. The market experienced a relief rally in late April because of positive tech earnings and expectations about new trade negotiations. The S&P 500 recovered its previous losses by early May, but it stayed in negative territory for this year so far.
Key Factors Driving the Index
Several fundamental factors explain the S&P 500’s ups and downs this year:
- Economic data: Signals have been mixed. Inflation has cooled to2.4%, raising hopes the Fed might not hike rates further. The job market is still solid – April saw 177,000 jobs added and unemployment near 4.2%. However, US GDP dipped slightly in Q1 2025 (the first decline in three years), partly due to the hit from tariffs.
- Federal Reserve policy: The Fed’s interest rate stance is crucial for sentiment. So far in 2025, the Fed has kept rates on hold and signalled only a couple of small cuts might come later. With inflation easing and growth uncertain, any hint that the Fed could ease sooner – or conversely stay strict – tends to move the market.
- Corporate earnings: Company earnings have been strong overall. In Q1 2025, about 76% of S&P 500 firms beat profit forecasts and total earnings rose roughly 12–13% year-over-year. However, many companies warned that tariffs and economic uncertainty could hurt future results, keeping their outlooks cautious.
- Geopolitics/trade: The US-China trade dispute has been a major wildcard. Higher import tariffs raise costs for many businesses and cloud the global outlook. Trade news has swung the market – stocks fell on the tariff announcement, then jumped on signs of negotiation. Until the trade standoff is resolved, it remains a key source of volatility.
S&P 500 Sector: YTD Performance (Jan to May 2025)
Source: FE Analytics. All indices are total return in US dollars. Past performance is not a reliable indicator of future performance. Data as of 5 May 2025.
Technical Trends to Watch
The S&P 500 index has recovered its shorter-term trend lines to approach its 200-day moving average at 5700 which functions as a significant resistance point that typically generates selling activity and prevents price increases. Market participants closely monitor this level because a successful breakout above it would indicate stronger buying activity and potentially start a more positive trend. The support zone between 5200–5300 has maintained its position as a dip zone because buyers continue to purchase assets at these levels.
Upcoming Earnings (May 2025)
The index may experience changes based on major earnings reports that occur in May. The retail sector will reveal consumer spending patterns through reports from Walmart and Target during mid-May. Home Depot will release its May 20 report which will show the current state of home improvement market demand. The semiconductor and AI sector will face investor optimism testing when NVIDIA releases its results on May 28. Investors will analyse these reports to determine if the economy is slowing down or showing strength.
Conclusion: What to Watch Going Forward
A few key areas will set the tone for the S&P 500 in the coming months:
- Trade negotiations: Progress (or setbacks) in US-China tariff talks. A deal or de-escalation could boost the market, while further escalation is a risk.
- Fed policy signals: Changes in Fed’s tone on interest rates. Clear signals of coming rate cuts would likely boost stocks, while a cautious Fed could cap gains.
- Economic indicators: Trends in inflation, jobs, and growth. Continued cooling inflation without a sharp slowdown would be ideal; recession warnings would hurt confidence.
- Corporate outlooks: Updates from companies on their expectations. If businesses raise or maintain forecasts despite headwinds, that’s a positive sign. Warnings or downgrades, however, could weigh on the index.
The recent market fluctuations demonstrate to long-term investors why diversification and patience remain essential investment strategies. The S&P 500 has survived previous market difficulties to produce substantial investment gains. Investors seeking to stay informed of such happenings should follow an economic calendar. Maintaining a balanced perspective will be enable traders to navigate the remaining months of 2025.
