Two more Wall Street strategists are projecting the bull market in US stocks will roll on in 2025.
On Monday, equity strategy teams at Barclays and RBC Capital Markets both issued a year-end target price of 6,600 for the S&P 500 (^GSPC) in 2025. The targets suggest a roughly 10.5% gain in the benchmark index over the next twelve months, about in line with the long-term historical average annual return over the past century.
“The story the data tells us is that another year of solid economic and earnings growth, some political tailwinds, and some additional relief on inflation (which should keep the S&P 500’s P/E elevated) can keep stocks moving higher in the year ahead,” RBC Capital Markets head of US equity strategy Lori Calvasina wrote in a note to clients on Monday.
Venu Krishna, head of US equity strategy at Barclays, wrote that with “inflation continuing to normalize, resilient macro, and Big Tech maintaining EPS growth leadership,” the S&P 500 should continue its march higher.
Barclays’ and RBC’s targets are the latest forecasts from strategists tracked by Yahoo Finance and the latest that reinforce a general optimism on Wall Street that stocks will continue to rally next year.
A highly debated component of these calls, however, has been whether or not 2025 will bring with it a continued broadening of returns outside the “Magnificent Seven” tech stocks that led the first 18 months of the bull market rally.
Calvasina argued that’s the most likely case, falling in line with a recent call from Goldman Sachs that mega caps will see “narrowing” outperformance in 2025.
Calvasina and her team cited growth as a “crowded” trade leading to the potential for more flows into the value side of the market, while also noting that valuations are more attractive outside of the large tech stocks. Additionally, the 2025 earnings outlook continues to point to a slowdown in earnings growth for large-cap tech, while the S&P 493 stocks are expected to see earnings growth accelerate.
“For Value to outperform, in recent years we’ve needed to see GDP run a bit hotter,” said Calvasina, who sees GDP pacing in a range of 2.1% to 3% in 2025, above the current Bloomberg consensus of 2%. “We’ve given an edge to the broadening of market leadership or the shift into Value, but think it’s a close call.”
Meanwhile, Krishna pointed to the most recent quarter of earnings reports in which Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA) all topped Wall Street forecasts as a reason to believe investors might not be optimistic enough about Big Tech’s earnings growth in 2025.
“Big Tech is likely to remain as critical of an EPS growth driver for the S&P 500 as the group was this year,” Krishna wrote.
Still, what that means for price returns in those stocks still remains to be seen.
“The last two earnings seasons have shown that headline EPS [earnings per share] beat-and-raises are not necessarily enough to drive additional share price upside amid concerns over the capital intensiveness of the next leg of growth, a consequence of the AI build out,” Krishna wrote.
“We believe the potential upside from further AI uptake is not under appreciated, but it comes with a big question mark attached,” Krishna added.
The calls for stocks to run higher also haven’t come without warning.
RBC’s Calvasina still sees an elevated likelihood of a 5%-10% drawdown occurring while the S&P 500 chugs higher to 6,600 at the end of next year.
“We have become increasingly worried about the possibility of a near-term 5-10% pullback in the S&P 500, primarily due to elevated positioning, recent froth in sentiment, and valuation that has gotten a little over its skis for 2024, which leave the S&P 500 vulnerable to bad news and perhaps simply in need of a breather,” Calvasina wrote.
A continued rise in 10-year Treasury yields, further dialing back of Federal Reserve rate cut expectations for 2025, and the rising strength of the US dollar are all headwinds Calvasina is closely tracking.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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