U.S. stocks have risen over 20% for two consecutive years, Trump "adds fuel to the fire," and Wall Street is worried: everyone is bullish!

As the end of 2024 approaches, the performance of the U.S. stock market has once again become the focus of Wall Street. So far this year, the S&P 500 index has risen over 27%, following a 24% increase last year. The phenomenon of consecutive two-year gains exceeding 20% is extremely rare in the past 100 years. Some analysts believe that there are already signs of "over-optimism" this year, and the market is concerned that the U.S. stock market will experience a bubble burst by 2025. Trump "adds fuel to the fire," U.S. stock market may fall into a bubble Currently, the situation regarding the Russia-Ukraine conflict and the Middle East remains unclear. Trump has threatened to carry out large-scale deportations of illegal immigrants and provoke global trade conflicts. The U.S. economy is facing a new round of inflation risks, and bond traders are also reducing bets on interest rate cuts by the Federal Reserve. However, investor sentiment does not seem to be significantly affected. The S&P 500 index reached a new high again this week, and since the beginning of the year, the index has set a record almost every five days, totaling 53 records. The performance of the small-cap Russell 2000 index over the past two weeks has nearly doubled that of the S&P 500 index. Such "optimism" has instead raised concerns among Wall Street professionals. Eric Diton, president and managing director of Wealth Alliance, stated: "One of my biggest concerns is the extreme bullish sentiment; we have already seen signs of this." According to Wall Street sources cited by Bloomberg, it is expected that after the S&P 500 index rises over 20% for two consecutive years this year and next, the index will achieve double-digit growth next year (the third year). One of the factors driving the enthusiasm in the stock market is investors' expectations for a repeat of the market performance during Trump's 1.0 era in 2015. However, Alex Atanasiu, a portfolio manager at Glenmede Investment Management, stated: "The market experience during Trump's last term has distorted their view of this bubble market. At that time, the market was recovering, and this time the valuations are even higher. We have experienced two years of strong performance, and presuming the market will have the same strong momentum is risky." Data from Bank of America shows that retail investors have a high proportion of investment in stocks and are taking on greater risks. Bernstein analysts also noted that investors seem to be almost avoiding any hedging strategies. Recently, the market's risk appetite has concentrated on small-cap stocks, which are viewed as having the "highest market risk." Analysts believe that some policies from the Trump administration are expected to have a positive impact on small-cap stocks. However, the earnings outlook for small-cap stocks is not optimistic, and uncertainty regarding how Trump's plans will affect economic growth, inflation, and the central bank's interest rate path is increasing. Additionally, since small companies are more sensitive to monetary policy, and the Federal Reserve has indicated it will slow down the expected pace of future interest rate cuts, this may not be favorable for small-cap stocks Other potential crises are also emerging in the market as enthusiasm for artificial intelligence-related matters begins to wane. Jonathan Krinsky, Chief Market Technician at BTIG, believes that "for part of the past, tech stocks were almost at the bottom, and if semiconductor stocks cannot stabilize, a larger crash may occur by 2025." What will happen in 2025 after two consecutive years of rising? Historically, there have only been a few instances of consecutive 20% increases over two years, and in the third year following these increases, market performance has varied: In 1927-1928, the S&P 500 index rose 31% and 38% respectively, and in 1929, the market experienced the "famous" "Black Monday," leading to a 13% drop in the stock market and triggering the Great Depression; In 1935-1936, the S&P 500 index rose 42% and 28% respectively, and in 1937, the market fell into another severe recession, dropping 39%; In 1954-1955, the S&P 500 index rose 45% and 26% respectively, and in 1956, as the end of the post-war long bull market, the market only slightly increased by 3%. In 1995-1996, the S&P 500 index rose 34% and 20% respectively, and after 1997, the market continued to rise by 31% until it fell for three consecutive years starting in 2000. Based on this, Bank of America holds an optimistic view on the current rally, believing that the S&P 500 index may experience double-digit fluctuations again in 2025, and the decline in bond yields will help the S&P 500 index avoid significant reversals seen in history, catalyzing further substantial stock increases, similar to what happened in 1997-1998. However, investors remain concerned, as the S&P 500 index has achieved a 20% increase four times, two of which occurred during historic market bubbles. Even though the market rose from 1997 to 1999, the bursting of the internet bubble was just around the corner. Data shows that the current price-to-earnings ratio of the S&P 500 index is about 38 times, lower than the peak of 43 times in 1999, but higher than any other period in history, comparable to the levels at the end of 1998, indicating that the current market valuation is approaching historical highs. Companies like Goldman Sachs and Vanguard have warned that returns in the coming years may be relatively weak