Wall Street’s 2025 Stock Forecast After a Stellar Two-Year Run

By Josh Schafer
Updated: January 2, 2025

Introduction
In the wake of a remarkable two-year surge in the stock market, characterized by over 20% gains for the S&P 500, Wall Street analysts are recalibrating their expectations for 2025. The exceptional performance, last seen in the late 1990s, raises questions about sustainability as the market approaches what many strategists predict will be a period of more moderate growth.

A Divergent Outlook for the S&P 500
After a backdrop of robust earnings across various sectors, the consensus among investment strategists is that while the bullish momentum continues, 2025 will bring significant volatility to the equity markets. Brian Belski, chief investment strategist at BMO Capital Markets, emphasizes that bull markets naturally slow down, allowing for a "digestive" phase that strengthens overall market health. Belski’s forecast sets a year-end target for the S&P 500 at 6,700, reflecting an anticipated 9.8% return, aligning closely with the index’s historical average.

In contrast, analysts tracked by Yahoo Finance provide a median estimate of 6,600 for the S&P 500, indicating a potential gain of approximately 12% from current levels. The range of predictions is wide, with targets extending from Oppenheimer’s optimistic 7,100 to Sitfel’s more cautious "mid 5000s," the only bearish projection among those monitored.

Shifts in the Tech Landscape
Despite the uncertainty, equities are displaying resilience. David Kostin, chief U.S. equity strategist at Goldman Sachs, suggests the market may still thrive even in the absence of continued explosive growth from the so-called "Magnificent Seven" tech stocks—Apple, Microsoft, Amazon, Meta, Tesla, Nvidia, and Alphabet. These companies reported an impressive year-on-year earnings growth of 33% in 2024, but projections indicate this will drop substantially in 2025. Kostin forecasts that the earnings margin will shrink, resulting in a decrease in their relative stock performance compared to the remaining 493 companies in the S&P 500. Economic Growth Prospects
Analysts are holding a cautious but optimistic view regarding U.S. economic growth, which is expected to remain robust in 2025. RBC Capital Markets’ Lori Calvasina notes that growth stocks are currently a "crowded" investment, suggesting an inflow of capital might shift toward value stocks as investors seek better opportunities. Many analysts, including those from Bank of America, predict GDP growth to edge higher than consensus estimates, encouraging investment in sectors sensitive to GDP changes like Financials, Consumer Discretionary, Materials, Real Estate, and Utilities.

This outlook hinges on economic indicators. Historical data shows that in years when GDP growth exceeds 2%, stock market performance improves significantly, with an average return approaching 11%. Conversely, years of lower growth have historically yielded more disappointing returns.

Navigating Risks and Market Uncertainties
However, any mismatch between economic performance and expectations could lead to greater volatility in equity markets. Evan Brown from UBS Asset Management highlighted that current valuations are already elevated, and any signs of slowing growth could dampen investor confidence. The volatility may be further exacerbated by the looming uncertainties, including potential shifts in Federal Reserve monetary policy and the impact of a new Donald Trump administration.

Conclusion
As Wall Street pivots towards 2025, strategists emphasize the importance of navigating a new landscape marked by slowing gains and potential market corrections. With predictions of a more normalized return environment and cautious optimism surrounding economic resilience, investors are urged to stay vigilant and prepared for potential fluctuations ahead. With expert insights steering investment decisions, the focus will remain on balancing risks while capitalizing on opportunities that the evolving market may present.