Wall Street’s Stock Outlook for 2025: A Shift Towards Moderation After a Stellar Two-Year Run
By Josh Schafer
Updated January 2, 2025
After witnessing the most robust performance of the S&P 500 since the late 1990s, Wall Street analysts are projecting a more tempered outlook for stock market gains in 2025. Following two consecutive years with more than 20% growth, which last occurred in 1997-1998, strategists suggest that while the underlying economic fundamentals remain sound, the rate of increase in stock prices is expected to slow down.
Positive Earnings and Economic Growth
Despite this anticipated moderation, many analysts remain optimistic about the potential for strong earnings from a broad spectrum of companies. The economic landscape in the U.S. appears resilient, with predictions of continued growth in gross domestic product (GDP). This positive backdrop supports the notion that the market can still witness upward momentum, albeit at a slower pace.
Brian Belski, Chief Investment Strategist at BMO Capital Markets, emphasizes this point in his 2025 market outlook. He notes that bull markets often experience periodic slowdowns, which are necessary for digesting prior gains. According to Belski, 2025 is likely to be characterized by a "more normalized return environment," suggesting investors can expect balanced performance across various sectors and company sizes.
Belski has set a year-end target of 6,700 for the S&P 500, following his projection of 6,100 for the end of 2024. This projection implies a nearly 10% return for the year, aligning with historical averages for the index.
Sector Predictions and Diverging Outlooks
The consensus among Wall Street strategists for the S&P 500 year-end target stands at a median of 6,600, reflecting approximately a 12% increase from current levels. Predictions vary widely, with Oppenheimer offering the most optimistic target at 7,100, while Sitfel provides a more cautious outlook, suggesting potential decline into the mid-5000s.
Analysts are particularly observant of a potential shift in market leadership away from technology and growth stocks. There are signs that the so-called "Magnificent Seven" companies—Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia—may not maintain their outsized influence as they did in the previous years. Earnings growth among these tech giants skyrocketed to 33% in 2024, dwarfing the mere 4.2% growth experienced by the remaining 493 companies in the S&P 500. However, expectations for 2025 indicate this disparity in growth rates will shrink.
Goldman Sachs Chief U.S. Equity Strategist David Kostin projects that the earnings margin between the Magnificent Seven and other S&P companies will narrow significantly, leading to weaker relative equity returns for this tech cohort compared to previous years.
A Broader Base for Growth
Analysts at RBC Capital Markets and Bank of America are advocating for a more diversified investment approach in 2025, suggesting a shift towards value stocks. Lori Calvasina from RBC points to a potential repositioning of investment flows toward sectors that benefit from stronger economic growth. This view is supported by Bank of America’s Savita Subramanian, who anticipates the U.S. economy to grow at an annualized rate of 2.4% in 2025. This expectation is above the Bloomberg consensus of 2.1% and aligns with projections favoring sectors sensitive to economic cycles, including Financials, Consumer Discretionary, and Utilities.
Calvasina remarks on the "crowded" nature of growth stocks, indicating a strategic advantage for value stocks should GDP growth exceed expectations, opening avenues for broader market participation.
Conclusion
As 2025 approaches, Wall Street analysts underscore the importance of a stable, yet more cautious investment strategy. With predictions indicating healthy economic growth coupled with strong earnings potential, the foundation for further market advances appears intact. However, investors should be prepared for a year of increased volatility and a potential shift in sector leadership that could redefine market strategies in the coming year.
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