Top Wall Street Bull Sees Feverish Stock Rally Fading in Second Half of 2025

The S&P 500 has been on a tear, entering its third year of a bull market with strong earnings and record highs. However, one prominent Wall Street strategist warns that the feverish rally may fade in the second half of 2025. Fundstrat's Tom Lee, known for his bullish stance, expects the index to reach 7,000 midyear but finish at 6,600, suggesting a pullback.



Lee's cautious outlook is supported by historical data. After two years of back-to-back 20% gains, stocks typically fall in the following year. Four out of five precedents since 1871 experienced declines, with only 1996 showing positive returns. Additionally, Lee is concerned about potential spending cuts and import tariffs under the Trump administration, which could impact economic growth and stock performance.



Lee's projection aligns with other Wall Street forecasts, which range from 6,400 to 7,000, implying returns between +5% and +15% from current levels. The average forecast predicts a 10% gain, in line with historical averages. However, Lee's caution is a stark contrast to his previous bullish calls, such as his 2023 S&P 500 finish prediction and his suggestion that the index could reach 15,000 by the end of the decade.

The strategist's prediction of a "Fed put" and "Trump put" influences his outlook for the first half of 2025. Lee expects the S&P 500 to rally midyear, driven by a "Fed put" as inflation eases and the central bank supports the economy, as well as a "Trump put" from business confidence and earnings growth under the incoming administration's policies. However, he cautions that the rally may fade in the second half as these factors lose their effectiveness.

Earnings per share (EPS) growth projections play a significant role in Lee's bullish stance for the first half of 2025. He projects EPS growth of $275 and $300 for 2025 and 2026, respectively, with a weaker dollar potentially boosting EPS. This optimism is supported by strong corporate earnings and technological advancements, which have driven the bull market's success.

In conclusion, while the S&P 500's rally may continue in the first half of 2025, Fundstrat's Tom Lee warns that the feverish pace could fade in the second half. Historical data, potential economic risks, and the strategist's projection of a "Fed put" and "Trump put" support this cautious outlook. As investors navigate the bull market, they should remain vigilant and adaptable to changing market conditions.