Wall Street's 2025 outlook for stocks

In summary: The fundamentals supporting earnings growth are firm. Valuations are above historical averages but are not cause for alarm. As usual, there’s plenty of uncertainty. But on balance, the outlook for stocks is favorable.

Below is a roundup of 14 of these 2025 targets for the S&P 500, including highlights from the strategists’ commentary.

• UBS: 6,400, $257 earnings per share (as of Nov. 18): “After a rally this year through Trump’s cabinet appointments, we see mild downside in equities in H1 next year amid a step down in US growth. Once earnings estimates have fallen to more realistic levels, H2 ’25 should be better.”

• Morgan Stanley: 6,500, $271 (as of Nov. 18): “Looking forward to 2025, we think it will continue to be important for investors to remain nimble around market leadership changes, particularly given the potential uncertainty that the recent election outcome introduces. This is also a reason why we are maintaining a wider than normal bull versus bear-case skew — base case: 6,500; bull case 7,400; bear case 4,600.”

• Goldman Sachs: 6,500, $268 (as of Nov. 18): “We estimate net margins will expand by 78 bp to 12.3% in 2025 followed by a further 35 bp increase to 12.6% in 2026. Our economists assume the Trump administration will impose targeted tariffs on imported automobiles and select imports from China. They also assume a 15% corporate tax rate on domestic manufacturers. On net, the impact of these policy changes on our EPS forecasts roughly offset one another.”

• JPMorgan: 6,500, $270 (Nov. 27): “US equities should remain supported by the expanding business cycle, US Exceptionalism that is helping broaden the AI cycle and earnings growth, ongoing easing by global central banks and the wind-down of Fed’s QT in 1Q. At the same time, US households are benefiting from a tight labor market, sitting on record wealth (+$10T over the past year to ~$165T as of 2Q24, +$50T since Covid), and potentially lower energy prices. Heightened geopolitical uncertainty and the evolving policy agenda are introducing unusual complexity to the outlook, but opportunities are likely to outweigh risks. The benefit of deregulation and a more business-friendly environment are likely underestimated along with potential for unlocking productivity gains and capital deployment.”

• CFRA: 6,585 (as of Nov. 20): “This new target incorporates fundamental, technical, and historical considerations, influenced by a 2.4% projected growth in U.S. real GDP and a 13% rise in S&P 500 operating earnings, supported by a continued decline in inflation readings and interest rates. Historical returns during the third year of bull markets following two successive years of double-digit increases, combined with stretched valuations relative to 10-year averages (using the current forward P/E ratio, market-cap to total revenue, and total enterprise value to forward EBITDA metrics), temper our optimism, leading to the below-average projected full-year price gain.”

• RBC: 6,600, $271 (as of Nov. 25): “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.”

• Barclays: 6,600, $271 (as of Nov. 25): “For U.S. equities, we think macro positives outweigh the negatives heading into next year. … We expect most sectors to be impacted by disinflationary margin pressure and slowing ex-US growth in 2025, while Big Tech continues offsetting to the upside.”

• BofA: 6,666, $275 (as of Nov. 26): “Get ready for a cyclical inferno. Nine reasons: (1) Red sweep, (2) Fed cuts, (3) accelerating profits, (4) re-shoring, (5) productivity cycle, (6) shift from everyone spending on Tech to Tech spending on everything, (7) municipalities refurbishing to court corporates, (8) tight capacity / decades of underspend in manufacturing, and (9) lightest positioning in cyclical sectors since at least the GFC.”

• BMO: 6,700, $275 (as of Nov. 18): “Bull markets can, will, and should slow their pace from time to time, a period of digestion that in turn only accentuates the health of the underlying secular bull. So, we believe 2025 will likely be defined by a more normalized return environment with more balanced performance across sectors, sizes, and styles.”

• HSBC: 6,700 (as of Dec. 6): “We expect next year’s equity returns to be focused on earnings growth as valuations are more stretched… Overall, we expect earnings to grow by 9% incorporating a slower but still resilient U.S. economy and some margin expansion.”

• Deutsche Bank: 7,000, $282 (as of Nov. 25): “Attention is focused on late cycle indicators, while early cycle indicators have been turning up. We see various aspects of the cycle yet to kick in, including de- to re-stocking; capex outside Tech; capital markets and M&A; loan growth; and rest of the world growth. With potential policy changes by the incoming administration having both positive and negative implications for growth, sequencing will be key, but we expect growth to remain the priority. Over several rounds of the last trade war, escalations saw equity selloffs which then prompted de-escalations.”

• Yardeni Research: 7,000, $290 (as of Nov. 10): “Just after Donald Trump won the presidential race on November 8, 2016, we observed that the economy and stock market were charged up with “animal spirits,” a term coined by John Maynard Keynes meaning spontaneous optimism. Animal spirits are back now that Trump won a second term on November 5…”

• Capital Economics: 7,000 (as of Nov. 7): “These projections, which rest on the assumption that the US economy will not stand in the way of a bubble in the stock market inflating amid hype around AI, are looking much less bold than they once did. But we aren’t minded to push up the forecasts just because the index has risen and reacted very favorably to the news of Trump’s victory. A key reason is our view that his policies would be a net negative for growth in the US and elsewhere. What’s more, if we’re right to exclude a major fiscal expansion from our list of working assumptions, US firms’ profits probably won’t get a boost from a further cut in corporation tax. Nonetheless, we are sticking to our existing projections for the S&P 500 because we don’t see Trump’s election derailing the economy or preventing the bubble in AI from inflating.”

• Wells Fargo: 7,007, $274 (as of Dec. 3): “On balance, we expect the Trump Administration to usher in a macro environment that is increasingly favorable for stocks at a time when the Fed will be slowly reducing rates. In short, a backdrop where equities continue to rally.”

Most of the equity strategists TKer follows produce incredibly rigorous, high-quality research that reflects a deep understanding of what drives markets. Consequently, the most valuable things these pros have to offer have little to do with one-year targets. (And in my years of interacting with many of these folks, at least a few of them don’t care for the exercise of publishing one-year targets. They do it because it’s popular with clients.)

So first off, don’t dismiss their work just because a one-year target is off the mark.

Second, I’ll repeat what I always say when discussing short-term forecasts for the stock market:

It’s incredibly difficult to predict with any accuracy where the stock market will be in a year. In addition to the countless number of variables to consider, there are also the totally unpredictable developments that occur along the way.

Strategists will often revise their targets as new information comes in. In fact, some of the numbers you see above represent revisions from prior forecasts.

For most of y’all, it’s probably ill-advised to overhaul your entire investment strategy based on a one-year stock market forecast.

Nevertheless, it can be fun to follow these targets. It helps you get a sense of the various Wall Street firms’ level of bullishness or bearishness.

I think RBC’s Lori Calvasina said it best in her outlook report: The price target “should be viewed as a compass as opposed to a GPS. It is a construct that helps to articulate whether we believe stocks will move higher and why.”

Good luck in 2025!

Below is a sampling of what Wall Street is saying about the economy in 2025.

BofA (Dec. 2): “We expect stable growth (2.3% in 2025, 2.0% in 2026), slightly elevated inflation (2.5-3%) and a terminal rate of 3.75-4%. Cuts in Dec, Mar, Jun. Even before tariffs or fiscal easing, data warrant slower cuts. The US economy went into the elections with structural and cyclical tailwinds. Structural: productivity and potential growth appear to have picked up, supporting higher policy rates. Cyclical: consumer remarkably resilient. Solid real income growth, healthy balance sheets. Fiscal policy has buoyed private and public investment. The labor market is the main concern. Bad news: narrow and slowing job gains, downward revisions, Sahm rule triggered, falling vacancies. Good news: low layoffs (and claims)…”

Deutsche Bank (Nov. 25): “We ultimately anticipate that modest tax cuts, a strong deregulation push, and more supportive financial conditions will produce faster growth in 2025, which we now see at 2.5% (Q4/Q4) versus 2.2% previously. Beyond next year, adverse effects from the trade war and a more restrictive monetary policy setting reduce our growth estimates modestly.”

Goldman Sachs (Nov. 17): “The Republican sweep in the recent elections will likely bring policy changes in three key areas. First, we expect tariff increases on imports from China and autos that raise the effective tariff rate by 3-4pp. Second, we expect tighter policy to lower net immigration to 750k per year, moderately below the pre-pandemic average of 1mn per year. Third, we expect full extension of the expiring 2017 tax cuts and modest additional tax cuts. These changes are significant, but we do not expect them to substantially alter the trajectory of the economy or monetary policy.”

JPMorgan (Nov. 21): “The election has sparked dueling boom-bust narratives on the path ahead. There are now upside risks to growth from deregulation and tax cutting and downside risks from tariffs and general policy uncertainty. But one shouldn’t lose sight of the business cycle, which has been performing well. We look for only a mild downshift in growth in 2025 to 2%, with a small additional rise in the unemployment rate to 4.5%. Core PCE inflation expected to decelerate a half-point next year to 2.3%. We look for the Fed to cut 25bps in December and another 75bps by the end of 3Q25, then stop at 3.75%.”

Morgan Stanley (Nov. 17): “Lower immigration flows and more tariffs slow GDP growth and make inflation stickier. Nascent inflationary pressures and broad policy uncertainty spark greater Fed caution, leading to a pause in 2Q. As higher tariffs hit growth and job gains almost stop in 2H26, rate cuts resume.”

UBS (Nov. 8): “We expect the new administration is inheriting a moderate economic slowdown, and as it is, the pace of nonfarm payroll employment gains has slowed from the brisk over 200K per month pace of 2023, to 148K per month over the six months ending in September. Inflation progress is projected to resume as we move through 2025. We expect that backdrop keeps the FOMC on track for lowering rates. Many crosscurrents such as potential deregulation and slower population growth move into the mix, with uncertain net impacts. We assume fiscal policy changes largely affect 2026 and beyond, based on existing agreements for the fiscal year ending in September 2025. The new tariffs we expect to be phased in with mostly a 2026 impact too. However, we did take out one rate cut in 2025, leaving monetary policy the tiniest bit more restrictive as the rollout of China tariffs begins.”

Wells Fargo (Nov. 21): “American trade policy likely will change in a more restrictive direction. During his campaign for president, Donald Trump repeatedly promised to impose a 10% across-the-board tariff with a 60% levy applied to China. The cost of tariffs, which are a tax on imported goods, are generally borne by consumers. Tariff increases of Trump’s threatened magnitude would lead to a marked increase in inflation next year, while significantly reducing the rate of economic growth, not only in the United States but in many foreign economies as well. We have bumped up our U.S. inflation forecast for next year, while shaving down our U.S. real GDP growth outlook.”

There were a few notable data points and macroeconomic developments from last week to consider:

👍 The labor market continues to add jobs. According to the BLS’s Employment Situation report released Friday, U.S. employers added 227,000 jobs in November. The report reflected the 47th straight month of gains, reaffirming an economy with growing demand for labor.

Total payroll employment is at a record 159.3 million jobs, up 7 million from the prepandemic high.

The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — ticked up to 4.2% during the month. While it continues to hover near 50-year lows, the metric is near its highest level since October 2021.

While the major metrics continue to reflect job growth and low unemployment, the labor market isn’t as hot as it used to be.

Wage growth ticks lower. Average hourly earnings rose by 0.37% month-over-month in November, down from the 0.42% pace in October. On a year-over-year basis, this metric is up 4.0%.

Job openings rise. According to the BLS’s Job Openings and Labor Turnover Survey, employers had 7.74 million job openings in October, up from 7.37 million in September.

During the period, there were 6.98 million unemployed people — meaning there were 1.1 job openings per unemployed person. This continues to be one of the more obvious signs of excess demand for labor. However, this metric has returned to prepandemic levels.

Layoffs remain depressed, hiring remains firm. Employers laid off 1.63 million people in October. While challenging for all those affected, this figure represents just 1.0% of total employment. This metric remains at pre-pandemic levels.

Hiring activity continues to be much higher than layoff activity. During the month, employers hired 5.31 million people.

That said, the hiring rate — the number of hires as a percentage of the employed workforce — has been trending lower, which could be a sign of trouble to come in the labor market.

People are quitting less. In October, 3.33 million workers quit their jobs. This represents 2.1% of the workforce. While the rate ticked up last month, it continues to trend below prepandemic levels.

A low quits rate could mean a number of things: more people are satisfied with their job; workers have fewer outside job opportunities; wage growth is cooling; productivity will improve as fewer people are entering new unfamiliar roles.

Job switchers still get better pay. According to ADP, which tracks private payrolls and employs a different methodology than the BLS, annual pay growth in November for people who changed jobs was up 7.2% from a year ago. For those who stayed at their job, pay growth was 4.8%

Unemployment claims tick higher. Initial claims for unemployment benefits rose to 224,000 during the week ending November 30, up from 215,000 the week prior. This metric continues to be at levels historically associated with economic growth.

Consumer vibes improve. From the University of Michigan’s December Surveys of Consumers: “Consumer sentiment improved for the fifth consecutive month, rising about 3% to its highest reading in seven months. A surge in buying conditions for durables led Current Economic Conditions to soar more than 20%. Rather than a sign of strength, this rise in durables was primarily due to a perception that purchasing durables now would enable buyers to avoid future price increases.”

Consumer sentiment readings have lagged resilient consumer spending data.

Politics clearly plays a role in peoples’ perception of the economy: “The expectations index continued the post-election re-calibration that began last month, climbing for Republicans and declining for Democrats in December. Independents were, as usual, in the middle between the two major parties, with readings close to the national average. This adjustment process is consistent with a response to actual underlying changes in expectations for the national economy, and not merely an expression of partisanship. For example, throughout this month’s interviews, Democrats voiced concerns that anticipated policy changes, particularly tariff hikes, would lead to a resurgence in inflation. Republicans disagreed; they expect the next president will usher in an immense slowdown in inflation. As such, national measures of sentiment and expectations continue to reflect the collective economic experiences and observations of the American population as a whole.”

Notably, expectations for inflation appear to be a partisan matter.

Card spending data is holding up. From BofA: “In the week ending Nov 30, retail ex-autos spending per HH was up 2.0% vs. the week ending the day after Black Friday in 2023. Online retail spending was particularly strong around the Thanksgiving period, while brick & mortar retail was soft. A later Thanksgiving this year means we need to wait at least another week to get a clean read on holiday spending.”

From JPMorgan: “As of 29 Nov 2024, our Chase Consumer Card spending data (unadjusted) was 1.9% above the same day last year. Based on the Chase Consumer Card data through 29 Nov 2024, our estimate of the US Census November control measure of retail sales m/m is 0.28%.”

Gas prices tick lower. From AAA: “Like a glacier grinding its way to the sea, the national average for a gallon of gas is closing in on the $3 mark, shedding three cents since last week to $3.03. It has been less than a dime away from $3 for over a month as the waffling decline has been agonizingly slow. The last time the national average was below $3 was May 11, 2021.”

Mortgage rates tick lower. According to Freddie Mac, the average 30-year fixed-rate mortgage fell to 6.69%, down from 6.81% last week. From Freddie Mac: “This week, mortgage rates decreased to their lowest level in over a month. Despite just a modest drop in rates, consumers clearly have responded as purchase demand has noticeably improved. The responsiveness of prospective homebuyers to even small changes in rates illustrates that affordability headwinds persist.”

There are 147 million housing units in the U.S., of which 86.6 million are owner-occupied and 34 million (or 40%) of which are mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to movements in home prices or mortgage rates.

Offices remain relatively empty. From Kastle Systems: “Peak day office occupancy was 57% on Thursday last week, as many workers stayed home in the days leading up to Thanksgiving. Tuesday occupancy was down 18.9 points to 42.8%, and even Monday fell more than seven points, down to 41.8%. The average low was 26.4% on Wednesday, less than half of the prior week’s 61.1%.”

Supply chain pressures remain loose. The New York Fed’s Global Supply Chain Pressure Index — a composite of various supply chain indicators — ticked higher in November but remains near historically normal levels. It’s way down from its December 2021 supply chain crisis high.

Business investment activity trends at record levels. Orders for nondefense capital goods excluding aircraft — a.k.a. core capex or business investment — declined 0.6% to $73.7 billion in October.

Core capex orders are a leading indicator, meaning they foretell economic activity down the road. While the growth rate has leveled off a bit, they continue to signal economic strength in the months to come.

Services surveys still point to growth. From S&P Global’s November Services PMI: “Companies have reported stronger demand for services thanks to the clearing of political uncertainty following the election, as well as brighter prospects for the economy in 2025 linked to the incoming administration and hopes for lower interest rates. The latter, alongside strong market gains in recent weeks, has helped drive an especially strong surge in demand for financial services, though November also saw robust growth for business and consumer services.”

The ISM Services PMI reflected growth but at a cooling rate.

Manufacturing surveys look less bad. From S&P Global’s November Manufacturing PMI: “Optimism about the year ahead has improved to a level not beaten in two and a half years, buoyed by the lifting of uncertainty seen in the lead up to the election, as well as the prospect of stronger economic growth and greater protectionism against foreign competition under the new Trump administration in 2025.”

Similarly, the ISM’s November Manufacturing PMI improved from the prior month.

Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.

Construction spending ticks higher. Construction spending increased 0.4% to an annual rate of $2.17 trillion in October.

Near-term GDP growth estimates remain positive. The Atlanta Fed’s GDPNow model sees real GDP growth climbing at a 3.3% rate in Q4.

Putting it all together

The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand for goods and services is positive, and the economy continues to grow. At the same time, economic growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like excess job openings have faded.

To be clear: The economy remains very healthy, supported by strong consumer and business balance sheets. Job creation remains positive. And the Federal Reserve — having resolved the inflation crisis — has shifted its focus toward supporting the labor market.

We are in an odd period given that the hard economic data has decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continue to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Analysts expect the U.S. stock market could outperform the U.S. economy, thanks largely due to positive operating leverage. Since the pandemic, companies have adjusted their cost structures aggressively. This has come with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Of course, this does not mean we should get complacent. There will always be risks to worry about — such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, cyber attacks, etc. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect to experience as they build wealth in the markets. Always keep your stock market seat belts fastened.

For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t be able to overcome over time. The long game remains undefeated, and it’s a streak long-term investors can expect to continue.

A version of this story first appeared at TKer.co