Wall Street’s Outlook: What’s Next for Stocks After the Best Two-Year Run Since the Late ’90s?
By Josh Schafer, Smart Money Mindset Reporter
Published: January 2, 2025
After an extraordinary two-year stretch in which the S&P 500 surged more than 20% each year—a feat not witnessed since 1997-1998—Wall Street strategists are signaling a more tempered pace for stocks in 2025. While the fundamentals for a bullish market remain strong, analysts anticipate a year defined by volatility and more moderate gains.
A Stellar Run and a Shift Ahead
The S&P 500’s back-to-back years of 20%+ gains have investors rejoicing, but this momentum is unlikely to persist at the same breakneck speed. According to Brian Belski, Chief Investment Strategist at BMO Capital Markets, 2025 is expected to present a “more normalized return environment,” featuring balanced performance across different sectors, company sizes, and investment styles.
Belski set a year-end 2025 target of 6,700 for the S&P 500. Given his forecast of 6,100 by the close of 2024, this implies a near 10% gain for the year—roughly in line with the index’s historical average annual return.
Across the board, the median S&P 500 target among 17 strategists tracked by Yahoo Finance is about 6,600, reflecting a projected 12% rise from current levels. However, projections vary from a high of 7,100 (according to Oppenheimer) to a more cautious "mid-5000s" outlook from Stifel, the lone firm expecting a decline.
The “Magnificent Seven” May Soften, But Market Strength Persists
One notable driver of the recent surge has been the outsized growth of the so-called "Magnificent Seven" tech giants—Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia. In 2024, these companies’ earnings grew an extraordinary 33%, dwarfing the 4.2% growth seen among the other 493 S&P 500 members.
Looking ahead, Goldman Sachs’ Chief U.S. Equity Strategist David Kostin expects this gap to narrow substantially. He projects the Magnificent Seven’s earnings growth edge will shrink to just 7 percentage points over other stocks in 2025—the smallest margin since 2018. This anticipated convergence reflects broader economic factors and could lead to more diversified market performance, with sectors beyond tech taking on a bigger role. Kostin notes that while micro-level earnings support continued tech dominance, macro factors like overall economic growth and trade policies could favor the broader market.
A Resilient U.S. Economy Underpins Optimism
Many Wall Street strategists remain bullish on U.S. economic growth powering stock gains next year. Lori Calvasina of RBC Capital Markets highlights that growth stocks—currently a “crowded” trade—may give way to increased interest in value stocks, particularly if GDP growth surprises on the upside.
Calvasina projects economic growth between 2.1% and 3% in 2025, slightly above the consensus Bloomberg forecast of 2.1%. Similarly, Bank of America’s economics team forecasts a 2.4% annualized U.S. GDP growth rate, providing further confidence.
Bank of America recommends overweight positions in GDP-sensitive sectors such as Financials, Consumer Discretionary, Materials, Real Estate, and Utilities, betting on sectors that typically benefit from a stronger economy.
What Investors Can Expect in 2025
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Moderate Stock Gains: Following two blockbuster years, overall market returns in 2025 are expected to align closer with historical averages around 10-12%.
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Increased Volatility: Uncertainty around Federal Reserve policy moves—specifically interest rate cuts—and political factors such as the new Trump administration could lead to choppier markets.
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Sector Rotation: The narrowing earnings gap between tech heavyweights and other sectors may encourage rotation into value stocks and cyclical sectors.
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Economic Resilience: U.S. GDP growth is anticipated to be robust enough to support corporate earnings and bolster stock prices broadly.
As investors look forward to 2025, the message from Wall Street is clear: The era of spectacular double-digit growth might pause for a breath, but the underlying health of the market remains solid. For those with a long-term perspective, steady gains supported by a resilient economy and diversified leadership across sectors offer a compelling outlook.
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