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Coming into 2025, there were good reasons to be nervous about what might happen in the stock market.
We have certainly seen some bumps along the way this year, including a stock market correction in April following unexpected shifts in US tariff policy.
But so far, 2025 has seen the stock market perform strongly.
The FTSE 100 has repeatedly hit new all-times highs. It is up 17% so far this year.
Stateside, the S&P 500 is up by the same amount – and last week broke its all-time record level.
Can that momentum carry on into 2026?
An uncertain reckoning
I think it can do. Whether it will, however, remains to be seen.
That might sound like I am sitting on the fence. But I think there is a justifiable argument on both sides of that fence.
The idea of further gains can make sense given what we have seen this year – strong stock market performance even within the context of a fairly modest economic performance overall.
If 2026 sees key economies like the US return to strong growth, that could give the stock market further impetus, in my view.
From a glass half empty perspective though, perhaps that strong stock market performance this year unaccompanied by a similarly robust economic performance could mean that the market’s valuation is getting harder to justify.
Added to that is the risk that the huge AI-related boom we have seen in some leading stocks this year is simply unsustainable.
Looking for individual bargains
Time will tell.
To some extent, what happens to the wider market is not critical for me anyway, as I am not investing in the market as a whole.
Rather than, say, putting money into an index tracker fund, I prefer on approach based on owning a suitably diversified portfolio of individual shares.
Why do I like this approach of buying individual shares?
Buying individual shares lets me try and filter out what I see as bad shares that might exert a downward drag on the performance of the market overall.
Instead, I can focus on situations where I see a mismatch between what I think is a brilliant business and how the stock market currently values it.
Down 47%, but I like it!
As an example, one share I have been buying repeatedly this year is Lululemon Athletica (NASDAQ: LULU).
Its shares jumped at the end of last week on news that the chief executive will step down.
When a share jumps because the boss is going to leave, that is often a sign of shareholder frustration (and relief)! Even after that jump though, the Lululemon share price is still 47% lower than it was at the start of the year.
That reflects weakening sales in the company’s key North American market. Growing competition from rivals like Alo and the threat of falling disposable incomes mean the pricey yoga outfit maker needs to sort out its North American performance as soon as possible.
But its global business is growing fast — and has lots more growth opportunities. The Lululemon brand remains strong and gives the company a lot of pricing power.
From a long-term perspective, I see its current stock market valuation as a potential bargain.
