Wall Street Strategists Predict Slower Gains for S&P 500 in 2025
As the stock market continues to rebound from earlier downturns, analysts on Wall Street are cautiously optimistic yet pragmatic about the S&P 500’s prospects for 2025. Following two robust years in which the index saw gains exceeding 20%, a feat unseen since the late 1990s, strategists now foresee a moderation in its performance in the upcoming year.
Strong Earnings and Resilient Economic Growth
Despite the expected slowdown, the fundamentals supporting the market remain solid. Analysts anticipate strong earnings reports across a diverse range of companies in 2025, coupled with a resilient U.S. economy. These factors suggest that there is still room for market growth, albeit at a more tempered pace compared to previous years.
Brian Belski, chief investment strategist at BMO Capital Markets, has provided insight into these forecasts. In his outlook for 2025, he shared that "Bull markets can, will, and should slow their pace from time to time," emphasizing that periods of consolidation can enhance the health of the underlying bull market. Belski predicts a year-end target of 6,700 for the S&P 500, representing a near 9.8% return compared to his call of 6,100 for the end of 2024, aligning with the index’s average historical gain.
Diverse Projections from Market Strategists
The average year-end target among analysts tracked by Yahoo Finance sits at 6,600, suggesting a potential increase of roughly 12% from current levels. Projections vary widely; some strategists, such as those from Oppenheimer, see the S&P 500 reaching 7,100, while others, like Stifel, expect a more cautious outlook, targeting the “mid 5000s.” The latter call is the only one among 17 strategists surveyed suggesting a potential decline in the benchmark index.
The ‘Magnificent Seven’ and Broader Market Dynamics
Analysts are also eyeing the performance of what is referred to as the ‘Magnificent Seven’ — a group of major technology stocks that includes Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia. This group has shown remarkable earnings growth, with a year-over-year increase of 33% in 2024, while the remaining 493 companies in the index managed just a 4.2% growth. However, projections indicate that this disparity may narrow significantly in 2025, with Kostin predicting the tech giants will outpace their counterparts by only 7 percentage points.
Goldman Sachs Chief U.S. Equity Strategist David Kostin points out that while the continued earnings growth from these leading tech firms could maintain their performance advantage, macroeconomic conditions such as economic growth and trade policies could favor broader indices, including the S&P 493. "The narrowing differential in earnings growth rates should correspond with a narrowing in relative equity returns," Kostin noted.
Conclusion
As Wall Street gears up for 2025, the prevailing sentiment reflects a balance between caution and optimism. While the S&P 500 is expected to see more moderate returns compared to the last two years, the underlying economic indicators and the diverse performance of sectors may still yield positive outcomes. Investors will be keeping an eye on economic developments, policy shifts, and the evolving landscape of earnings as they prepare for the year ahead.
Share this article:
