Investors Anticipate Strong Gains for US Stock Market in 2025
Despite a recent pullback, investors are expecting a strong year for the US stock market in 2025, fueled by a solid economy, moderating interest rates, and pro-growth policies from the incoming Trump administration. The benchmark S&P 500 index was up 23.31% in 2024, marking its second-straight year of gains exceeding 20%.
Investors are more confident about the economy than a year ago, with consumers and businesses having absorbed higher interest rates and the Federal Reserve now lowering them. Corporate profits are expected to be strong, with S&P 500 earnings per share projected to rise 10.67% in 2025.
However, there are some risks to consider, including inflation, which remains stubborn, and the potential for a rebound that could lead the Fed to change course on its easing cycle. Additionally, the S&P 500 is trading at elevated valuations, with a price-to-earnings ratio of 24.82, which is well above its long-term average.
Despite these risks, many investors are optimistic about the market’s prospects. Garrett Melson, a portfolio strategist at Natixis Investment Managers, believes the stock market could still produce solid gains of around 10% in 2025, although it may not reach the same levels as the past two years.
Wall Street firms are mostly projecting gains for the market next year, with year-end targets ranging from 6,000 to 7,000 points. The index ended 2024 at 5,881. Some investors are cautioning that the market could be due for a correction, with valuations reaching levels that may not be sustainable.
Others, however, believe that the market has more room to grow. Keith Lerner, co-chief investment officer at Truist Advisory Services, notes that the current bull market is less than half as long as the average length of the 10 prior ones, and that the S&P 500 has gained an average of 12.3% following instances of back-to-back 20% annual gains since 1950.
The outlook for the economy is also positive, with 73% of institutional investors surveyed by Natixis Investment Managers expecting the US to avoid a recession in 2025. The Citigroup economic surprise index has also been solidly positive for the past two months, a sign that the economy is performing better than expected.
