Wall Street’s 2025 Stock Market Outlook: A Moderation in Momentum After Two Strong Years
Written by Josh Schafer
As we usher in 2025, Wall Street is recalibrating its expectations for stock market performance after witnessing a remarkable two-year surge not seen since 1997-1998. The S&P 500 has recorded consecutive yearly gains exceeding 20%, but strategists are predicting a more tempered pace moving forward.
Analyzing Past Performance
The remarkable growth over the past two years has set a high bar for the market, raising questions about sustaining momentum. Analysts suggest that a more subdued performance is to be expected in 2025, albeit on the foundation of strong anticipated earnings from companies across various sectors. Economic growth in the U.S. is projected to remain robust, contributing to a relatively positive outlook for stock prices.
Brian Belski, chief investment strategist at BMO Capital Markets, expresses optimism regarding the stock market’s health despite the expected moderation. "Bull markets can, will and should slow their pace from time to time," he stated in his 2025 outlook. He predicts that 2025 will be characterized by normalized returns, with the S&P 500 expected to reach a year-end target of 6,700—reflecting a 9.8% return, in line with the index’s historical average.
The median target from a survey of strategists conducted by Yahoo Finance places the S&P 500 at 6,600 by the end of 2025, suggesting a potential increase of about 12% from current levels. However, the projections vary widely, with some strategists forecasting the index could hit as high as 7,100, while others, like Sitfel, predict a decline into the mid-5,000s.
Expecting Sector Shifts
Despite strong performances from major technology firms dubbed the "Magnificent Seven," which include giants like Apple, Microsoft, and Nvidia, market analysts believe that future growth will not be as heavily reliant on these stocks. David Kostin, chief U.S. equity strategist at Goldman Sachs, notes that while these leading companies showcased impressive earnings growth of 33% year-over-year in 2024, that growth is expected to narrow in 2025. Kostin posits that the dominance of these technology stocks may lessen, allowing infrastructure and value-oriented companies to gain ground. This expectation of more balanced performance across sectors could mitigate risks of extreme volatility linked to tech stock fluctuations.
RBC Capital Markets’ Lori Calvasina points to crowded growth stocks as an area needing caution, hinting at a potential rotation towards value stocks amid anticipated economic conditions. Calvasina envisions GDP growth may exceed forecasts, insisting that a healthy economy is crucial for supporting stock performance, especially among value stocks.
Economic Factors and Market Risks
The outlook is further complicated by inflationary concerns and the broader macroeconomic environment, particularly with uncertainties surrounding Federal Reserve rate decisions and the implications of a new political landscape. Analysts stress that sustained economic growth is vital for equity performance.
Bank of America’s Savita Subramanian echoes this sentiment, suggesting a GDP growth of 2.4% in 2025, well above current consensus estimates of 2.1%. Companies in sectors sensitive to GDP are positioned favorably—suggesting an "Overweight" rating on Financials, Consumer Discretionary, Materials, Real Estate, and Utilities.
However, UBS asset management’s Evan Brown cautions against reliance on optimistic projections. With many strategists anticipating continued economic resilience, a failure to meet those expectations could have detrimental effects on stock valuations. The notion that equities are already trading at elevated price levels underscores the sensitivity of the market to unforeseen shifts in performance.
Conclusion
While Wall Street remains optimistic about the stock market in 2025, analysts agree that investors should prepare for a period marked by heightened volatility and potential challenges. The anticipated slowdown in earnings growth, coupled with macroeconomic uncertainties, will define market dynamics in the coming year. As strategists across the industry advocate for a diversified approach, the journey ahead may prove both complex and nuanced, requiring careful navigation through the evolving landscape.
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