Wall Street’s Outlook for Stocks Post Best Two-Year Run Since the Late ’90s
By Josh Schafer, Smart Money Mindset
Updated: January 2, 2025
In the wake of an impressive two-year performance, where the S&P 500 index surged by over 20% consecutively—a feat not observed since 1997-1998—Wall Street analysts project a more tempered pace for stock gains in 2025. This anticipated shift suggests that while the foundational elements supporting continued market growth remain robust, investors should brace themselves for potential volatility in the coming year.
Earning Expectations and Economic Growth
The consensus among strategists is optimistic regarding earnings for a wide array of companies in 2025, alongside predictions of resilient economic growth in the United States. However, analysts caution that fluctuations could arise due to uncertainties surrounding potential interest rate cuts by the Federal Reserve and impending political changes such as a possible Donald Trump administration.
Brian Belski, chief investment strategist at BMO Capital Markets, articulated this sentiment in his 2025 outlook: "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 has set an ambitious year-end target of 6,700 for the S&P 500, anticipating a 9.8% return, aligning closely with the index’s historical average.
Year-End Targets from Analysts
According to a survey of strategists compiled by Yahoo Finance, the median target for the S&P 500 is positioned at 6,600, suggesting a 12% increase from current levels. The forecasts vary, with some analysts like Oppenheimer projecting a higher year-end target of 7,100, while Sitfel presents a more cautious outlook, predicting a drop into the "mid 5000s," the only pessimistic forecast among the surveyed professionals.
The “Magnificent Seven” Tech Giants’ Prospects
A pivotal aspect of the market’s dynamic involves the performance of the so-called "Magnificent Seven"—the leading tech companies: Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia. These companies collectively posted a remarkable 33% year-on-year earnings growth in 2024, outpacing the 4.2% growth experienced by the remaining 493 S&P 500 companies, according to data from FactSet.
Despite their stellar performance, Goldman Sachs’ chief U.S. equity strategist David Kostin projects a decrease in this earnings differential in 2025, which suggests that the tech giants’ advantage over their peers will diminish significantly. Kostin expects the earnings growth for this group to taper off, narrowing their outperformance margin, possibly leading to a more balanced market landscape.
Shifts Toward Value Investments
As analysts navigate through 2025, many are observing a potential shift in market dynamics favoring value investments over growth stocks. Lori Calvasina of RBC Capital Markets has labeled growth stocks as a "crowded" trade, indicating that there may be more capital flow toward value sectors within the market. This sentiment hinges on the broader belief that U.S. economic growth could exceed expectations, with GDP forecasts for 2025 ranging between 2.1% and 3%, higher than current projections by Bloomberg.
Supporting this optimism, Bank of America economist Savita Subramanian anticipates a 2.4% annualized economic growth rate in 2025, which is encouraging for sectors sensitive to GDP changes, including Financials, Consumer Discretionary, Materials, Real Estate, and Utilities.
Conclusion
As investors prepare for what 2025 holds, anticipation surrounding corporate earnings and economic performance underscores a complex but optimistic sentiment. While the analysis points to a more normalized return environment, it also reflects a cautious approach towards the market’s potential for volatility. With expectations managed and economic indicators closely watched, it remains essential for investors to stay informed and flexible in their strategies, as the landscape continues to evolve.
This comprehensive outlook on Wall Street’s expectations for stocks provides valuable insights for investors keen on making informed decisions as we move through the next year.
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