Wall Street Predicts Slower Gains for S&P 500 in 2025 Amid Economic Uncertainty
After a remarkable run, with the S&P 500 index achieving more than 20% gains in both 2022 and 2023—a feat not observed since the late 1990s—strategists on Wall Street are forecasting a more tempered growth trajectory for the benchmark index in 2025. This comes as strong earnings from a diverse range of companies and resilient economic growth in the United States paint an optimistic yet cautious picture for the upcoming year.
Economic Outlook for 2025
According to analysts, the fundamental underpinnings for growth in the stock market remain robust, bolstered by anticipated earnings from a widespread array of companies. However, projections indicate that investors should brace for a potentially more volatile atmosphere as significant uncertainties loom on the horizon. Notable among these is the potential for interest rate cuts by the Federal Reserve and the possibility of a new Donald Trump administration.
In his 2025 outlook, Brian Belski, chief investment strategist at BMO Capital Markets, emphasized that while bull markets can exhibit periodic slowdowns, these moments of digestion can further strengthen the market’s underlying health. “Bull markets can, will and should slow their pace from time-to-time, a period of digestion that in turn only accentuates the health of the underlying secular bull,” Belski stated, adding, “So we believe 2025 will likely [be] defined by a more normalized return environment with more balanced performance across sectors, sizes, and styles.”
Forecasts and Targets
Belski has set his year-end target for the S&P 500 at 6,700, which would represent an increase of approximately 9.8% from his year-end target of 6,100 for 2024. This return is notably aligned with the S&P’s historical average gain. Interestingly, the median year-end target among strategists tracked by Yahoo Finance is slightly lower, sitting at 6,600, indicating a potential 12% gain from the current levels.
Strategists have presented a wide range of targets, with Oppenheimer forecasting a high of 7,100, while Sitfel has provided a more pessimistic outlook with a projection in the “mid 5000s,” marking it as the sole prediction among 17 tracked by Yahoo Finance that anticipates a decline for the benchmark index.
The Role of Major Tech Stocks
In a further analysis, Goldman Sachs chief US equity strategist David Kostin pointed out the underlying strength of the market, suggesting that the S&P 500 could maintain its upward momentum even if the ‘Magnificent Seven’ tech stocks—Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia—do not continue their outsized performance.
In 2024, these seven tech giants experienced significant growth, with their earnings increasing by 33% year-over-year. In contrast, the remaining 493 S&P 500 companies saw only a modest earnings growth of 4.2%. However, estimates indicate that this earnings margin will shrink considerably in 2025, with the Magnificent Seven expected to outpace the broader index by just 7 percentage points, reflecting the narrowest differential since 2018.
Kostin noted, “The narrowing differential in earnings growth rates should correspond with a narrowing in relative equity returns.” He added that while the individual earnings growth of these tech leaders supports ongoing outperformance, broader factors such as economic conditions and trade policies are more favorable for the remaining 493 companies.
Conclusion
As the investment community prepares for 2025, the dual narrative of anticipation and caution prevails. With expected earnings growth tempered by broader economic influences and underlying uncertainties, navigating this landscape will require careful consideration from both strategists and investors. The consensus suggests a year of more measured gains but with a firm grounding in strong economic fundamentals, leaving room for optimistic performance across the market.
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