Wall Street strategists are anticipating a more tempered pace of gains for the S&P 500 as 2025 approaches, following two consecutive years where the index experienced growth exceeding 20%. This remarkable feat, last witnessed nearly three decades ago, might give way to volatility as both economic and political uncertainties loom on the horizon.
According to Brian Belski, the chief investment strategist at BMO Capital Markets, the focus for 2025 will shift toward quality and growth at a more moderated pace. Belski articulated this viewpoint, emphasizing, "Bull markets can, will and should slow their pace from time-to-time, a period of digestion..." He has set a year-end target for the S&P 500 at 6,700, predicting returns close to the index's average historical gain of about 9.8% for the coming year.
The median target from various strategists tracked by Yahoo Finance sits at 6,600, indicating projected growth of around 12% from current levels. This forecast varies significantly among analysts, with Oppenheimer raising the target as high as 7,100 and Stifel placing expectations considerably lower, with projections in the "mid 5000s," the only pessimistic call among the 17 strategists surveyed.
Despite expectations of slower performance, there is optimism among strategists. The anticipated continued strong earnings across diverse sectors and resilient U.S. economic growth underpin the fundamental outlook for the market. Goldman Sachs chief U.S. equity strategist David Kostin also weighed in on the performance of the leading tech stocks, commonly referred to as the 'Magnificent Seven'—which include Apple, Microsoft, and Tesla—and noted their impressive earnings growth of 33% through the past year. This contrasts with only 4.2% growth observed among the remaining S&P 500 members.
Kostin cautioned, though, about the narrowing margins among earnings forecasts, hinting at the potential for diminishing outperformance by these tech giants. "Although the 'micro' earnings growth story supports continued ‘Magnificent 7’ outperformance..." he noted, adding it might not be as pronounced as it has been previously. This could lead the Magnificent Seven to outperform the other 493 S&P stocks by just 7 percentage points, the smallest differential recorded since 2018.
Looking at broader economic indicators can provide insight as we head toward 2025. Recent reports indicated jobless claims dropped to their lowest levels since March, with 211,000 claims filed last week. This decrease suggests a strengthening labor market, which might contribute positively to overall economic stability. Conversely, rising mortgage rates to 6.97%—the highest since early July—have impacted home purchase applications and refinancing strategies, as reported by the Mortgage Bankers Association.
Investor sentiment appears cautiously optimistic as the new year opens. During the first trading days of January 2025, the S&P 500 enjoyed modest gains, with the tech-heavy Nasdaq also seeing positive movement, partly fueled by renewed enthusiasm surrounding artificial intelligence technologies after their formidable performances over the past couple of years.
Despite the enthusiasm, there remains speculation about how sustainable this momentum will be, particularly concerning the investment community's reliance on the health and performance of the 'Magnificent Seven' stocks. With increasing competition for tech giants like Apple—whose shares dropped following price reductions on recent models amid local competition—the focus will remain on how these powerhouse firms adapt to changing market dynamics.
Starbucks, for example, is also making headlines as it prepares for potential financial improvements under the leadership of their new CEO, Brian Niccol, following poorer-than-expected results from the previous year. Analysts remain cautious but optimistic about the coffee chain’s strategies aimed at enhancing service and operational efficiency.
This variable environment sets the stage for what many predict will be 2025’s experience—a year of adjustment and recalibration within the market. With investor focus anticipated to shift not only to individual companies but also to broader economic signals, it emphasizes the importance of staying informed amid fluctuities.
Overall, as Wall Street heads toward 2025, there is cautious optimism tempered by economic realities. While the growth may slow relative to the previous two years, the underlying fundamentals and variety of forecasts provide reason for cautious positivity. A year of moderated growth may well serve the market, allowing for healthier, more sustainable gains as the uncertainties of rate cuts and political change play out over the upcoming months.