"Unlocking the Secret to a Stock Market Rebound: What You Need to Know"

Image credits: As the S&P 500 remains essentially flat on the year and about 5% off its all-time high, strategists argue that a rebound in the economic growth story is crucial for the major index to climb higher. (Image credit: GHI-Plexi Images/UCG/Universal Images Group via Getty Images)

The stock market has struggled to find its footing in 2025, with uncertainty over President Trump's tariff policy and recent economic data surprising to the downside. Despite the best year-over-year corporate earnings growth in three years, the S&P 500 remains essentially flat on the year and about 5% off its all-time high. So, what could turn the market around?

According to David Kostin, Goldman Sachs US equity strategist, an improvement in the US economic growth outlook is required to fully reverse the recent equity market weakness. "We believe an improvement in the US economic growth outlook will be required to fully reverse the recent equity market weakness," Kostin wrote in a note to clients.

The recent market sell-off has been headlined by a decline in momentum stocks, which are typically defined as a group of market winners that keep moving higher. Stocks like Meta, Palantir, Nvidia, and Tesla have lagged in recent weeks amid the market's tumble. Kostin's team has seen its momentum factor sell off by 5% or more in a one-week period nine times since 2021, and each time, subsequent S&P 500 returns were typically dependent on whether the market's pricing of economic growth improved or deteriorated.

Broadly, economic data has shown weaker growth than Wall Street expected, challenging a key piece of the bull case for stocks. Many strategists expected the US economy to grow at a solid pace of roughly 2% or higher in 2025, but the data has led to a sharp downward revision to economic growth forecasts for the first quarter.

Mike Wilson, Morgan Stanley chief investment officer, notes that "growth (both economic and earnings) is now the prominent driver of equity indices." Michael Kantrowitz, Piper Sandler chief investment strategist, lists a "growth scare" as one of the key reasons stocks have been in a slump and adds that "if we get better economic data that helps."

The upcoming February jobs report will be a major test for the market, with economists expecting a cooling but still solid labor market. The consensus projects the US labor market added 160,000 jobs in the month, while the unemployment rate held flat at 4%. Stuart Kaiser, Citi's head of US equity trading strategy, notes that the unemployment rate is a key data risk to equity markets, and the options market is pricing in its largest one-day move for the S&P 500 since September.

In conclusion, a rebound in the economic growth story is crucial for the stock market to climb higher. As investors, it's essential to stay informed about the latest economic data and expert insights to make informed investment decisions. By keeping a close eye on the upcoming jobs report and other key economic indicators, you'll be better equipped to navigate the current market landscape and make the most of potential opportunities.