Virtually the Whole Wall Street Eyes Double - Digit Stock Return in 2025
Bloomberg's survey of major Wall Street strategists for 2025 reveals some interesting insights.
The majority of strategists expect double-digit percentage growth for the S&P 500. This is quite remarkable considering that the market ended 2024 at or near all-time high valuations, without the support of low bond yields. The market has been largely driven by Big Tech, which is currently not trading at cheap valuations.
While tech stocks could potentially justify their current prices if they grow as optimists predict, their extreme revenue multiples suggest an extraordinary level of optimism regarding the sustainability of profit margins. The fact that almost the entire Wall Street anticipates a double-digit year in such a context is a testament to the prevailing bullish sentiment.
Looking back at 2024, US stocks witnessed a significant surge. This was driven by a combination of strong economic growth, cooling inflation, a series of Federal Reserve rate cuts, and the excitement surrounding Trump's election victory. Tech and AI stocks were the standout performers of 2024, and they are expected to continue leading the growth in 2025. Analysts believe that the factors that propelled the market in 2024, such as a favorable economic environment and investor optimism, will carry over to some extent in the new year.
Some analysts view the impressive growth of US stocks, particularly in the tech and AI sectors, as indicative of a new era. They believe that sustainable valuations and strong future earnings growth in these areas can support a continued rally.
Dan Ives, a well-known tech bull and senior analyst at Wedbush Securities, expressed in a December 30 note that he expects tech stocks to rise by 25% in 2025. He attributes this expectation to less regulation under the Trump administration and a continued Goldilocks foundation for Big Tech and Tesla. Ives has identified Nvidia, Microsoft, and Palantir as his top three tech winners for AI in 2025, all of which had significant gains in the previous year.
However, it's not all smooth sailing. Wall Street analysts are also wary of potential challenges in 2025. Uncertainty around Trump's proposed tariff policy could create volatility and impact certain sectors. There are concerns about the potential resurgence of inflation, which could force the Federal Reserve to take a different stance on monetary policy. Additionally, looming geopolitical tensions around the world could have a negative effect on the stock market's growth trajectory.
As Jurrien Timmer, director for global macro at Fidelity Investments, noted in a December 18 statement, 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. This cautionary note highlights the need for investors to be mindful of the potential risks even in an otherwise optimistic environment.
In conclusion, while Wall Street is generally optimistic about the stock market's performance in 2025, investors should be aware of the potential challenges and uncertainties that lie ahead. The combination of political expectations, economic fundamentals, and sector-specific outlooks will all play a role in shaping the market's trajectory in the coming year. It's a time for investors to stay informed, manage their expectations, and make well-informed decisions in this dynamic market environment.