U.S. Stock Market Has Flourished in 2024, But What About 2025?

At this time last year, global equity investors and Wall Street's top strategists were preparing for potential significant turmoil in the U.S. stock market in 2024. They were deeply concerned about a possible hard landing for the U.S. economy and the timing of the Federal Reserve's rate cuts, which might come too late or not arrive at all in 2024.

Few Wall Street analysts expected the NASDAQ 100 Index and the S&P 500 Index to rise by more than 20% so far in 2024, with geopolitical and other risk events failing to hinder the explosive growth of the U.S. stock market.

Notably, in 2023, the U.S. stock market, aided by the global frenzy of AI deployment, made an epic comeback into a bull market, shattering Wall Street's face at the year-end stock market review—where all Wall Street investment institutions failed to anticipate the U.S. stock market bull run in 2023. In 2024, Wall Street was once again slapped in the face by the strong growth of the U.S. stock market, proving that even the world's top equity market strategists cannot accurately predict this stock market that attracts global capital.

The U.S. stock market is destined to enter the bull market hall of fame in 2024—the S&P 500 Index's gain ranks among the best of the century.

At the start of the new year, few expected that after the bull market in 2023, the U.S. stock market benchmark—the S&P 500 Index—would be among the best in history in terms of annual gains. Nor did many investors anticipate that, driven by a few tech giants, market sentiment would be so optimistic that the U.S. stock market would emerge unscathed from one risk-laden pessimistic event after another, repeatedly hitting historical highs.

The Stock Market Has Not Had One "Pullback Over 10%" in 2024

At the end of 2023, economic slowdown was the main prediction of many economists, and high inflation remained a focus, making the direction of monetary policy and the outlook for corporate profits very unclear and even pessimistic, which was the core logic behind Wall Street's lack of optimism for the U.S. stock market in 2024.

However, so far in 2024, these doubts have been completely shattered. The benchmark interest rate has dropped significantly, the U.S. economy remains robust, corporate earnings continue to rise, and the scale of stock buybacks by listed companies has reached a new high. These factors have collectively driven the U.S. stock market to hit historical highs repeatedly. Despite a series of severe risk events, market volatility has remained at a historically low level.

The NASDAQ 100 Index, which covers all popular technology stocks, and the S&P 500 Index, which represents the broader U.S. stock market, have performed more closely to their historical averages, indicating that the hottest artificial intelligence concepts, technology stocks, and cyclical stocks have all moved up in 2024, not just the AI concept stocks that dominated in 2023. Both benchmark indices have risen by more than 20%, breaking Wall Street's skeptical sentiment.

"There has been an extraordinary equity run - particularly in the US," said William Davies, Global Chief Investment Officer at Columbia Threadneedle Investments. "Economic growth in the US has been solid and inflation has steadily decreased."

So far in 2024, the U.S. stock market has seen mild volatility, with only one significant pullback: the summer selling wave, which eventually triggered a sharp sell-off around August. However, the decline lasted less than a month and failed to break through the 10% threshold typically considered a technical adjustment.

The largest decline this year has been shallow and short—neither the European nor American stock markets have broken the correction threshold.

Despite geopolitical issues remaining a significant threat, there has been no escalating and spreading armed conflict in the Middle East, the Russia-Ukraine conflict has not spread across the European continent as some analysts expected, and the U.S. presidential election has not triggered any deep social security concerns. China has released a series of stimulus measures sufficient to maintain the logic of healthy global economic growth.

Can Wall Street's Predictions Be Trusted This Time?

As the New Year approaches, the mood among Wall Street's predictions is optimistic, with almost no investment institutions expecting a significant adjustment. Those well-known investment institutions are all very optimistic about the U.S. stock market for 2024. However, due to the consecutive two years of full-scale prediction failures by Wall Street elites, and the U.S. stock market entering the next year at historical highs and high valuations, coupled with a significant cooling of expectations for Federal Reserve rate cuts, the market is slightly skeptical about whether the U.S. stock market can achieve outstanding gains for three consecutive years.

So far this year, the S&P 500 Index has surged by more than 25%, and it is on track to achieve a return rate of over 20% for two consecutive years—a scenario that has only occurred four times in the past 100 years. Deutsche Bank forecasts that the U.S. stock market benchmark, the S&P 500 Index, could reach 7,000 points by the end of next year, compared to the index's closing at 5,998 points on Wednesday. This makes Deutsche Bank the most optimistic institution among many Wall Street investment firms predicting further increases in the U.S. stock market. Deutsche Bank predicts that corporations will repurchase $1.3 trillion of their own shares from investors, up from $1.1 trillion this year.

The average forecast of Wall Street investment institutions is currently at 6,400 points, and JPMorgan Chase, which has long been bearish on the U.S. stock market, has also turned bullish. The team led by the institution's Chief Global Equity Strategist, Dubravko Lakos-Bujas, predicts that the S&P 500 Index will touch 6,500 points by the end of 2025. The institution expects a healthy U.S. labor market, interest rate cuts, and a surge in capital expenditure in the competition for leadership in artificial intelligence technology to stimulate the continued rise of the U.S. stock market.

Additionally, both UBS and Morgan Stanley expect the S&P 500 Index to reach 6,500 points next year, with Goldman Sachs, Barclays, and Bank of America's forecasts all around 6,600 points.

Davis said, "Earnings growth forecasts for 2025 in the US remain optimistic, at around 15%. This continued resilience is to some extent a little surprising because the global economy is not without risks as we move into 2025."