Wall Street’s Outlook for Stocks After the Best Two-Year Run Since the Late 1990s
By Josh Schafer | Updated January 2, 2025
After the S&P 500 delivered more than 20% gains for two consecutive years—a feat not seen since the late 1990s—Wall Street strategists are projecting a slower but steady pace of growth for stocks in 2025. While 2023 and 2024 marked a remarkable bull market stretch, expectations for the year ahead suggest moderation, with increased volatility as investors navigate several uncertainties.
A Record-Breaking Rally and What Comes Next
The S&P 500’s back-to-back strong years represent the most impressive performance since 1997-1998, a period remembered for robust economic expansion and surging market returns. Heading into 2025, this momentum is expected to continue but at a more normalized level. Strategists highlight strong corporate earnings and resilient U.S. economic growth as the key drivers supporting further gains.
However, Wall Street experts warn that uncertainties surrounding Federal Reserve policy changes—particularly regarding interest rate cuts—and the political landscape amid a new Donald Trump administration could lead to heightened market volatility.
BMO Capital Markets’ Chief Investment Strategist Brian Belski summed up the outlook, stating, “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 projects the S&P 500 will reach 6,700 by the end of 2025. This forecast translates to a return of about 9.8% for the year, aligning closely with the index’s historical average gain.
Analysts’ Price Targets Show Moderate Optimism
The median year-end target for the S&P 500 among 17 major Wall Street strategists tracked by Yahoo Finance is approximately 6,600 points, suggesting a 12% appreciation from the index’s current levels as of early January.
There is some divergence among forecasts, however. Oppenheimer offers a more bullish price target near 7,100, while Stifel projects the index will settle in the mid-5,000s—representing the only bearish outlook in the group.
Beyond the “Magnificent Seven” — More Broad-Based Gains Expected
One notable misconception heading into 2025 is that the “Magnificent Seven” tech giants—Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia—will continue to dominate growth. While these seven companies accounted for much of the market’s outsized gains in 2024, their earnings growth rate is projected to slow relative to the rest of the market.
Goldman Sachs’ Chief U.S. Equity Strategist David Kostin notes that while the “Magnificent Seven” grew earnings by over 33% in 2024, the other 493 S&P 500 companies only grew by roughly 4.2%. In 2025, the expected earnings growth gap will narrow significantly, with the Magnificent Seven’s advantage reducing to seven percentage points—the tightest differential since 2018. Kostin explains that this shift may lead to a more balanced market where broader economic factors, such as general economic growth and trade policies, will uplift a larger number of stocks beyond just the tech heavyweights.
Economic Growth Supporting Market Strength
Underlying Wall Street’s optimism is a resilient U.S. economy. RBC Capital Markets strategist Lori Calvasina points to growing investor interest in value stocks, which have historically outperformed when GDP growth is strong—typically above 2%. Calvasina projects U.S. GDP growth to range between 2.1% and 3% in 2025, slightly ahead of the Bloomberg consensus forecast of 2.1%.
Bank of America’s economics team is similarly upbeat, forecasting 2.4% annualized GDP growth next year. This optimism influences BofA’s bullish stance on financially sensitive sectors like Financials and Consumer Discretionary stocks, indicating potential rotation away from growth and tech stocks toward areas benefiting more directly from economic acceleration.
What Investors Should Expect in 2025
- More Moderate Gains: After historic gains, the market is expected to settle into a steadier growth trajectory, with the S&P 500 potentially rising 10-12% in 2025.
- Greater Volatility: Market uncertainties related to Federal Reserve decisions and political shifts may cause fluctuations.
- Broader Market Participation: A wider array of sectors and companies, beyond the top tech performers, could drive market returns.
- Economic Resilience: Continued robust U.S. economic growth may underpin corporate earnings and support stocks across sectors.
As the new year unfolds, investors will be watching closely how these factors interact to shape market performance amid a significantly changed global and domestic landscape compared to the late 1990s bull run.
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