After two years of annual gains north of 20% for the S&P 500 (^GSPC), Wall Street strategists think 2025 will see a more measured yr for stocks.
On Monday, BMO Capital Markets chief investment strategist Brian Belski initiated a 2025 year-end goal of 6,700 for the S&P 500. On Sunday, Morgan Stanley chief investment officer Mike Wilson issued a 12-month goal of 6,500 for the S&P 500.
Belski’s goal reflects about 14% upside from Friday’s close; the strategist already has a 6,100 year-end goal for 2024. This puts Belski’s forecast for returns in 2025 at 9.8%, right consistent with the index’s average historical gain. Wilson’s 12-month goal represents a virtually 11% increase for the benchmark index over the following yr.
Should the S&P 500 finish 2024 with a gain above 20%, it might mark the primary time the benchmark index has posted consecutive years with gains of 20% or more for the reason that tech bubble of 1998-1999.
Any way you slice it, then, these outlooks say the outsized returns the S&P 500 has enjoyed for every of the past two years will come to an end in 2025.
“It’s clearly time for markets to take a somewhat of a breather,” Belski wrote.
“Bull markets can, will and may slow their pace from time-to-time, a period of digestion that in turn only accentuates the health of the underlying secular bull. So we imagine 2025 will likely [be] defined by a more normalized return environment with more balanced performance across sectors, sizes, and styles.”
Belski points out that the historical pattern for bull markets sees returns in yr three are available below gains for the primary two years and below the index’s typical average return.
“Now that inflation, rates of interest (zero percent is NOT normal) and employment are showing signs of stabilizing (volatility diminishing), US stock fundamentals have their best likelihood to normalize,” Belski wrote.
“In accordance with our work, an environment of high single digit annual price gains coupled with at or near double digit earnings growth and price to earnings ratios within the high teens to low twenties over the following few years can be an excellent start on the trail to normalization.”
With the Federal Reserve cutting rates of interest while US economic growth stays strong, each Belski and Wilson imagine in a continued broadening of the stock market rally, where greater than only a few high-flying tech names are driving the market motion.
“We expect this broadening in earnings growth to proceed because the Fed cuts rates into next yr and business cycle indicators proceed to enhance,” Wilson wrote. “A possible rise in corporate animal spirits post the election could catalyze a more balanced earnings profile across the market in 2025.”