Equity strategists forecast a rise in the S&P 500 by over 8% by the end of 2025, anticipating U.S. interest rate cuts and potentially reduced regulation during President-elect Donald Trump's term to bolster the market's robust performance, according to a poll conducted by Reuters.
The anticipated continuation of the U.S. economic health is expected to drive earnings growth, with financials being highlighted as a top sector pick for 2025, partly due to the possibility of deregulation under the Trump administration.
Market participants are optimistic that Trump's proposed tax cuts and deregulation will spur economic growth and further market gains.
Based on a median forecast from 48 strategists, analysts, brokers, and portfolio managers surveyed between November 15 and November 26, the S&P 500 is predicted to close 2025 at 6,500 points, an 8.5% increase from its close on Monday at 5,987.37. This projection is a significant jump from the 5,900 point forecast made in August.
Following the November 5 election, where Trump emerged victorious, stocks soared to record highs. The S&P 500 has seen an approximate 26% uptick so far in 2024, with notable increases in Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT), and other U.S. tech giants leading the artificial intelligence technology sector.
David Kostin, chief U.S. equity strategist at Goldman Sachs (NYSE:GS), suggested that these high-performing "Magnificent 7" stocks are likely to continue their upward trend in 2025, albeit at a reduced pace.
The anticipated earnings growth for the S&P 500 is 14.2% in 2025, a rise from this year's 10.2%, as per LSEG data. With the S&P 500's current trading at 22.6 times expected earnings, exceeding the 10-year average of around 18, Sanctuary Wealth's chief investment strategist Mary Ann Bartels expressed confidence in the market's valuation in light of the projected earnings and economic growth.
However, concerns about inflation and its influence on the Federal Reserve's rate-cutting ability persist. The Fed initiated its easing cycle with a significant half-percentage-point rate cut in September, marking the first borrowing cost reduction since 2020. Trump's plans for imposing substantial tariffs on key trading partners may also contribute to rising consumer prices.
Investor worries include a potential stock market correction early next year, with a portion of poll respondents considering a 10% correction likely or highly likely.
Financial sector stocks have surged approximately 35% year to date, leading S&P 500 sector gains, with technology stocks close behind at a 33% increase. Bank stocks have particularly benefited from the prospect of increased merger activity.
The poll also provided an outlook for the Dow Jones Industrial Average, predicting it to end next year at 46,600.
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