Wall Street Strategists Anticipate Slower Gains for S&P 500 in 2025
The S&P 500, having achieved impressive gains exceeding 20% for two consecutive years, is expected to experience a deceleration in growth in 2025, according to Wall Street strategists. This marked trend of robust performance is noteworthy, as it hasn’t been seen since the late 1990s.
Current Economic Landscape
Despite the predicted slowdown, analysts maintain a positive outlook for the fundamental drivers behind the market. Anticipated strong earnings across a diverse range of companies, coupled with resilient growth in the U.S. economy, suggests that the conditions for further increases in the market remain intact. However, strategists caution that 2025 could present more volatility for stocks due to uncertainties surrounding potential Federal Reserve rate cuts and the implications of a potential return of a Donald Trump administration.
‘Bull markets can, will, and should slow their pace from time to time,’ commented Brian Belski, chief investment strategist at BMO Capital Markets. He elaborated that such a period of digestion could bolster the underlying health of the sustained bull market. Belski forecasts that 2025 will likely see a ‘more normalized return environment,’ characterized by balanced performance across various sectors, sizes, and styles of companies.
S&P 500 Forecasts
Belski has set an end-of-year target for the S&P 500 at 6,700 for 2025, following a prediction of 6,100 for the close of 2024. This expectation translates to a projected return of approximately 9.8% for 2025, aligning closely with the index’s historical average gain.
According to a study by Yahoo Finance that tracked various strategists, the median year-end target for the S&P 500 is estimated at 6,600, reflecting a potential increase of around 12% from current levels. The forecasts span a wide range, with Oppenheimer suggesting a target as high as 7,100, while Stifel’s prediction dips into the “mid-5000s,” marking it as the only bearish projection among the 17 analysts surveyed.
Resilience Beyond Tech Giants
In a notable observation regarding market resilience, Goldman Sachs chief U.S. equity strategist David Kostin pointed out that the market has the potential to advance even if the prominent ‘Magnificent Seven’ tech stocks do not continue their massive outperformance into 2025. This cohort includes major companies like Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia, which collectively reported a remarkable 33% year-over-year earnings growth in 2024. In contrast, the remaining 493 S&P 500 companies yielded a modest 4.2% growth during the same period, according to data from FactSet.
Nonetheless, this outperformance gap is expected to narrow significantly in 2025, with projections indicating that the Magnificent Seven will surpass the other constituents of the S&P 500 by a mere 7 percentage points. Kostin asserts that this narrow margin reflects the smallest distinction in outperformance for these tech giants since 2018.
He explains, ‘The narrowing differential in earnings growth rates should correspond with a narrowing in relative equity returns.’ While the micro-level growth story may fuel sustained outperformance for the Magnificent Seven, broader macroeconomic factors, including economic growth and trade policy, may favor a more balanced performance from the remaining S&P 493 stocks.
Conclusion
As 2025 approaches, investors and analysts will be closely monitoring both the macroeconomic environment and corporate earnings, particularly in light of the predicted shift towards a more normal and potentially volatile market landscape. The guidance offered by Wall Street strategists serves as a roadmap for anticipating market movements, emphasizing the importance of a balanced outlook across sectors and a cautious approach to investment strategies.
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