Stocks had a blockbuster 2023 and 2024. Will 2025 be a three-peat?
After two years of substantial gains, Wall Street expects the good times for markets to keep going this year — just not on the massive scale investors have been spoiled with lately.
Wall Street forecasts reviewed by CNN show that most strategists expect double-digit percentage growth for the S&P 500 in 2025, though more moderate than in 2024. Analysts expect the S&P 500 to rise 14.8% in 2025, according to FactSet.
US stocks surged last year as strong economic growth, cooling inflation, a series of Federal Reserve rate cuts and enthusiasm for President-elect Donald Trump’s election victory boosted investor optimism. Tech and AI stocks were the stars of 2024, and they are largely expected to lead growth again in 2025.
Yet Wall Street analysts warn of potential downsides in 2025. Uncertainty around tariff policy proposed by Trump, potentially resurgent inflation and looming geopolitical tensions are among the issues that could hurt the stock market’s growth, according to Bank of America.
“I am bullish on stocks for 2025, though with valuations high and the bull market maturing, I don’t think investors should expect quite such spectacular returns next year as we have seen this past year,” Jurrien Timmer, director for global macro at Fidelity Investments said in a December 18 note.
Of course, forecasting is a game only for the iron-stomached, and predictions can often miss the mark. In 2024, many analysts raised their price forecasts for the S&P 500 during the year, as the index surged higher than expected.
The case for a happy new year
The S&P 500 ended 2024 with an annual gain of about 23% after rising by 24% in 2023, marking the first time since 1997 and 1998 that the index has closed with back-to-back gains of above 20%, according to FactSet data.
The thriving stock market has not just benefited traders: Gains in the S&P 500 boosts retirement savings and serves as a general signal of economic stability.
But Wall Street doubts another year of gains north of 20% is achievable. Forecasts from major banks, including UBS, Goldman Sachs and Bank of America for the S&P 500 in 2025 range from growth of around 10% to 14% — certainly healthy gains by any standard.
Among the more bullish analysts, Christopher Harvey, head of equity strategy at Wells Fargo, expects the S&P 500 to reach 7,007 by the end of 2025 — a gain of about 19%.
Wall Street expects continued stock market gains because it forecasts strong economic growth, corporate earnings and an incoming business-friendly administration under Trump.
Heading into 2025, some analysts see US stocks’ impressive growth as evidence of a new era in tech and AI, with sustainable valuations and strong future earnings growth to support a continued rally.
Dan Ives, a tech bull and senior analyst at Wedbush Securities, said in a December 30 note that he expects tech stocks to rise 25% in 2025 due to less regulation under the Trump administration and a continued “Goldilocks foundation” for Big Tech and Tesla.
Ives picked Nvidia, Microsoft and Palantir as his top three tech winners for AI in 2025. All were huge gainers last year, too.
The bear case for 2025
But the ever-present potential for a volatile policymaking environment during the Trump presidency, the potential for a change in Fed policy and a market that has encountered precious little resistance could pose problems for stocks in 2025.
This year, the Fed largely quashed inflation without throwing the economy into a recession. Yet inflation is not entirely tamed. In December, the Fed issued what some economists termed a “hawkish cut,” signaling that after the central bank cut rates it might not do so again for a while. After its final policy meeting of 2024, the Fed revised its outlook for its preferred inflation gauge for 2025, raising it from 2.1% to 2.5%.
Concerns about inflation and the Fed sent stocks sinking in early December, and they’ve been struggling to regain their momentum ever since. The Dow on December 18 set its longest losing streak since 1974.
Traders expect just an 11% chance of a rate cut in January, according to the CME FedWatch tool.
“The Fed’s admitted uncertainty as to monetary policy actions in 2025, combined with the expectation of only two cuts (rather than four) in 2025 amplified investor uncertainty and concern, triggering profit taking this year versus delaying into the new year,” said Sam Stovall, chief investment strategist at CFRA Research.
As the new year begins, investors will be glued to news about key issues — like potential tariffs — that could make or break markets under the Trump administration.
“The most significant wild card on the table for 2025 will be the potential implementation of tariffs,” David Sekera, chief US market strategist at Morningstar said in a December 3 note.
An extended selloff could undermine America’s economic growth, noted Mark Zandi, chief economist at Moody’s Analytics, in a post on X. Zandi said he thinks the economy is “highly vulnerable to a selloff in the stock market.” He described how the stock market’s growth has been driven by wealthy households opting to spend more and save less.
“If the stock market falters, something I’ve argued is a serious risk, these wealthy households would surely react by saving much more and spending less,” Zandi said.
CNN’s Elisabeth Buchwald contributed reporting.
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