Will the Stock Market Rise in 2025? Investors Who Ignore This Historical Pattern Do So at Their Own Risk.

Maybe you've heard about patterns in the stock market, but found the subject overwhelming. People talk about 50-day moving averages, descending triangles, double tops, and double bottoms, as well as head and shoulders, which aren't to be confused with cup and handles. It all sounds a little too many.

Fortunately, there's a far easier stock market pattern out there, and it may be the only one that you ever need to know. Here it is: Over the long term, the S&P 500 rises two out of every three years. In other words, the odds are roughly 66% in favor of gains in any given year.

Will the stock market go up in 2025? Betting that it will go up is the most logical bet an investor could make, given the historical pattern. It's a pattern that investors ignore at their own risk, and it has me seriously considering Nvidia (NASDAQ: NVDA) for my own portfolio. Here's why.

But first, the reason behind it all

To pluck an example out of the air, Tractor Supply (NASDAQ: TSCO) was a stock that I would have gladly bought at the start of 2024, but I wanted a better price. Not buying caused me to miss out on its 33% year-to-date gains, which have outpaced the otherwise stellar 27% returns for the S&P 500.

TSCO data by YCharts.

Peter Lynch was one of the world's greatest investors. He said, "Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves." I reluctantly admit that this is exactly what happened to me.

At the start of 2024, I could list out many reasons why the stock market was headed for a so-called correction this year, and I could have backed up each point with facts and data points. But I was still wrong.

For illustrative purposes, I believe I would have bought Tractor Supply stock at the beginning of the year had it been 20% cheaper. But let's imagine that I went ahead with a $10,000 investment, anyway, despite my convictions. If turned out to be right, I'd have witnessed a 20% drop, meaning I'd have been down $2,000. In reality, however, I'd be up $3,300. Like Lynch said, I've lost more money waiting for a stock market correction than I would have lost in the correction itself.

Thinking big-picture, Tractor Supply is exactly the sort of high-quality business investors should be looking for. With nearly 2,300 locations, it's big. And with operating margins close to 10%, it's a strong business. Moreover, it's reliable. It has over 37 million members in its loyalty club, and over half of its sales are related to livestock and pets, which are less discretionary purchases. Finally, it has opportunity for growth as it expands more into the pet space.

Rather than waiting for a correction, investors are better served by gradually buying more of Tractor Supply stock over time with a system called dollar-cost averaging. It's a great way to build a position when you're betting the market will rise -- and given the historical pattern, you should bet it will rise.

Why Nvidia might be a stock for 2025

I've gone on record with my belief that Nvidia stock rose too fast -- investors are pricing quite a bit of long-term growth into the investment today. That said, I've never doubted the quality of this business, and I believe it may have a wider moat than I've given it credit for.

To briefly explain, Nvidia's graphics processing units (GPUs) are powering the revolution in artificial intelligence (AI). The company's net-profit margin has soared to over 55% because its customers simply want more GPUs than what it can possibly supply.

NVDA Profit Margin data by YCharts.

As Amazon founder Jeff Bezos once said, "Your margin is my opportunity." I believed Nvidia's ridiculously high margin would invite competition, especially since its customers are some of the most technologically advanced companies on earth. It seemed that at least some of them would develop their own GPUs to compete.

So far, this hasn't materialized, and it's fair to start believing that Nvidia can keep competitors at bay. Consider that the CEO of Amazon's Amazon Web Services recently said to Bloomberg: "The first core innovation is that we built our own chip. It's called Tranium 2." But he followed this up by saying, "We think of it as a supplement to Nvidia GPUs." In other words, Amazon looks like it's making complementary AI products, not competitive ones. So perhaps Nvidia's margins are safer than I gave it credit for.

It may seem foolish to consider Nvidia stock now -- after all, it's already up over 2,600% in just five years. But there's another historical trend I'm considering here: Over the last 10 years, the top stock of the S&P 500 (of stocks that were in the index for the entire year) went up 80% of the time the following year. Right now, Nvidia is in first place among these companies, suggesting it will rise again next year.

It makes sense: A stock doesn't outperform 499 of the biggest, more profitable U.S. companies unless something extraordinary is happening with the business. Those extraordinary things tend to play out for multiple years. This is why top stocks tend to continue rising.

The big-picture trend that investors shouldn't ignore is that it makes sense to bet that the stock market will go up in 2025. For this reason, waiting for a pullback to buy isn't necessarily the best approach. The better approach would be to dollar-cost average into high-quality businesses such as Tractor Supply and Nvidia. Given Nvidia's performance in 2024, it's reasonable to expect it to perform well again in 2025 as the market rises.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Nvidia, and Tractor Supply. The Motley Fool has a disclosure policy.