The S&P 500 (^GSPC) posted two consecutive years of gains of more than 20%, an achievement not seen since the late 1990s, and Wall Street strategists believe the benchmark index will rise in 2025. We expect the pace to slow.
In 2025, strong profits are expected from a wide range of companies, and economic growth in the United States is expected to remain solid, so the basic story of the market’s further rise in 2025 remains unchanged. But strategists warn that uncertainty surrounding Federal Reserve interest rates will lead to a more volatile year for stocks. Cuts are being made and a new administration under Donald Trump is just around the corner.
“Bull markets can, do, and should slow down from time to time,” Brian Belsky, chief investment strategist at BMO Capital Markets, said in his 2025 outlook. “It only highlights the health of the underlying secular bulls.” “We therefore believe 2025 is likely to be defined by a more normalized earnings environment with more balanced performance across sectors, sizes and styles.”
Belsky set a target for the S&P 500 index by the end of 2025 at 6,700. With a target of 6,100 by the end of 2024, Mr. Belsky’s expected return in 2025 is 9.8%, which is in line with the index’s historical average increase.
The median year-end target for the S&P 500 among strategists tracked by Yahoo Finance is 6,600. This represents an increase of approximately 12% from the index’s current level. This goal goes as high as Mr. Oppenheimer’s 7,100 and as low as Mr. Sitfel’s “mid-5,000s” prediction. This is the only prediction among the 17 strategists tracked by Yahoo Finance that the benchmark index will decline next year.
David Kostin, chief U.S. equity strategist at Goldman Sachs, and his colleagues believe that the massive outperformance of the Magnificent Seven tech stocks will not continue into 2025, in a sign of stock market resilience. also said the market could rise further.
Across three-quarters of reports, a combination of Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA) combined for annual revenue. I extended it. It grew 33% year-over-year in 2024, compared to just 4.2% for the other 493 S&P 500 companies, according to FactSet data.
But consensus estimates predict that profit margin will fall to just 8 percentage points by 2025. Kostin believes this will lead to the stock outperforming the other 493 stocks by just 7 percentage points in 2025, the closest of the Magnificent Seven dating back to 2018. It is outperforming at the level.
“A narrower earnings growth differential should be matched by a narrower relative stock return,” Kostin wrote. “While the ‘micro’ earnings growth story supports continued ‘Magnificent 7’ outperformance,” more ‘macro’ factors such as economic growth and trade policy are tilted in favor of the S&P 493. .”
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RBC Capital Markets’ Lori Calvasina said growth stocks are a “crowded” trade and could see more inflows to the value side of the market.
Importantly, Calvasina’s call relies on another common belief among Wall Street bulls heading into 2025: The idea is that U.S. economic growth will continue to pick up surprises.
“For value to outperform, we needed a little bit more growth in GDP in recent years,” Calbasina said, predicting 2025 GDP of 2.1% to 3%, above the current Bloomberg consensus of 2.1%. We expect it to be in the range of . “While we are well positioned to expand our market leadership and move towards value, we believe we are on the brink.”
Bank of America’s Savita Subramanian agreed. Bank of America’s economics team predicts the U.S. economy will grow at an annual rate of 2.4% in 2025, also faster than the Bloomberg consensus forecast of 2.1%.
For this reason, BofA favors “GDP-sensitive companies,” with overweight ratings in the Financials (XLF), Consumer Discretionary (XLY), Materials (XLB), Real Estate (XLRE), and Utilities (XLU) sectors. is recommended.
A closer look at Calvasina’s research shows why economic growth meeting or exceeding positive expectations is important for stock market gains. Since 1947, annual GDP has grown between 1.1% and 2% five times. Over the past few years, the stock price has increased just 40% of the time, with an average decline of 3.4%. On the other hand, in years when GDP was between 2.1% and 3%, stock prices rose 70% of the time, with an average return of nearly 11%.
Of course, there is a possibility that growth cannot be expected. UBS asset manager Evan Brown told Yahoo Finance’s 2025 Outlook Roundtable that anything short of that would weigh heavily on stocks, given that so many strategists are already expecting economic resilience. He said there is a possibility that it will become a problem. Given the already rich valuations of U.S. stocks, Brown said it would take “a lot” to change the widely held belief that the U.S. economy and stock prices will outperform the rest of the world by 2025. It doesn’t take long.”
Indeed, despite the market’s bullish outlook, there are important risks to strategists’ decisions that could lead to further volatility in 2025.
One is the possibility of a resurgence of inflation. The US Federal Reserve (Fed) announced earlier this month that it expects core inflation to reach 2.5% next year, higher than previously expected of 2.2%, before declining to 2.2% in 2026 and 2% in 2027. Showed.
Barry Bannister, chief investment strategist at Stifel, believes rising inflation is prompting the Federal Reserve to keep interest rates high as economic growth slows. These factors could act as important catalysts for an eventual stock market pullback, resulting in the S&P 500 potentially ending in the “mid-5000s” in 2025.
Read more: How Fed Rate Cuts Affect Bank Accounts, CDs, Loans, and Credit Cards
That’s far from a consensus call. But Bannister’s base case highlights the known unknowns that many Wall Street strategists have discussed in their 2025 stock outlooks. Uncertainty about what the new Trump administration will bring is expected to continue to be a market theme in the new year. Some of President-elect Donald Trump’s proposed policies, including high tariffs on imported goods, tax cuts for businesses and immigration restrictions, are considered potentially inflationary.
“Stocks can weather this and may do well in the long run, but not without some significant disruption, especially with these policies,” said Kevin Gordon, senior investment strategist at Charles Schwab. Because many have never seen it before.” Yahoo Finance.
New Year’s Eve 2025 numbers are displayed in New York’s Times Square on December 18, 2024. (AP Photo/Julia Demaree Nickinson, File) ·Related news organizations
Josh Schafer is a reporter for Yahoo Finance. X Follow him at @_joshschafer.
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