Last 2 Bears on Wall Street Shout S&P 500 Huge Correction Coming in 2025, Here's What They Say

The Wall Street outlook for the stock market in 2025 is finally out, with most institutions being bullish. However, two institutions still foresee a bear market. Let's delve into their predictions.

The first is Stifel, which forecasts that U.S. stocks will retreat by 10%-15% next year, with the S&P 500 ending around 5000 points. Meanwhile, BCA Research predicts a 27% drop in U.S. stocks to 4450 points.

This stands in stark contrast to the views of other Wall Street institutions. The average target price for the S&P 500 at the end of 2025 is 6539 points, representing a potential rise of about 8% from current levels.

Here are the concerns of the last two bearish institutions on Wall Street regarding the direction of U.S. stocks in 2025. 

According to Stifel's Chief Equity Strategist Barry Bannister, stock market valuations have reached extreme levels, and growth stocks have outperformed value stocks excessively.

The S&P 500 has had four prior P/E ratio over-valuation 'manias' above the 150-year trendline — and 2024 is the fifth mania, Bannister said in the firm's outlook published on Thursday.

Bannister indicated that the high valuation of the S&P 500 suggests an imminent 10%-15% correction. Such a decline would bring the S&P 500 down to a low of 5000 points.

In addition to high valuations, Bannister also pointed to an economic slowdown, which would be a double blow for investors.

Bannister expects U.S. real GDP to fall from the current approximately 3% to about 1.5% in the second half of 2025. Meanwhile, persistent inflation and slowing wage growth could hit consumption, adding further pressure to the economy next year.

Finally, Bannister noted that due to persistent high inflation and zero fiscal visibility, he expects the Federal Reserve to pause rate cuts at the FOMC meeting in January next year, which would further pressure risk assets.

Taken together, Bannister said the expected environment in 2025 does not appear conducive to extending an ongoing equity mania. Bannister advises investors to hold defensive sectors such as healthcare, utilities, and consumer staples.

In addition to Stifel, BCA Research is the most bearish institution on Wall Street. The research firm has a target price of 4450 points for the S&P 500 at the end of 2025, representing a 27% drop from current levels. The combination of a weak economy and reduced consumer spending makes the firm concerned about a potential recession in 2025.

The institution emphasized that recent comments during earnings calls from major retailers indicate that the revenge spending from the pandemic period is coming to an end. BCA Research stated, Revenge spending appears to be over, with more and more retailers reporting weakening consumption momentum.

Meanwhile, the labor market has sent mixed signals, with some positive signs such as a rise in job vacancy rates in October, and some negative signs such as an increase in quit rates and a decline in hiring rates, which fell to a four-year low in June.

BCA Research describes this as a one step forward, two steps back trend, indicating a softening labor market that could ultimately lead to a recession.

 

We expect that continued softening will eventually provoke a wave of layoffs, triggering a vicious circle in which shrinking payrolls beget slower spending, begetting further payroll contraction and still slower spending growth until businesses slash discretionary investment and a recession ensues, BCA Research said in a note earlier this week.

Finally, like Stifel, BCA also believes that stock market valuations have reached extreme levels. The firm highlighted that the S&P 500's forward P/E ratio is about 23 times, nearly two standard deviations above its average.

BCA Research believes that high valuations and a turbulent economic backdrop ultimately make risk assets like stocks difficult to buy.

Although we believe a 2025 recession is more likely than not, risk assets could disappoint even in the absence of a recession, and current prices do not augur well for future returns, the research firm said.