Market Optimism Abounds: Strategists Predict S&P 500 Rally to Continue
As we look ahead to 2025, Wall Street strategists are painting a rosy picture for the S&P 500. Despite the absence of artificial intelligence (AI) as a driving force in their forecasts, analysts are confident that the market will continue its upward trajectory.
Broadening Rally Signals Maturity
BMO Capital Markets’ chief investment strategist, Brian Belski, has set a 2025 year-end target of 6,700 for the S&P 500, while Morgan Stanley’s chief investment officer, Mike Wilson, predicts a 12-month target of 6,500. Notably, neither strategist relies heavily on AI to justify their projections. Instead, they focus on the broadening of the rally, which suggests a maturing bull market.
Earnings Growth Takes Center Stage
Wilson expects earnings growth to continue as the Federal Reserve cuts interest rates and business cycle indicators improve. This sentiment is supported by Belski’s research, which shows that 276 stocks outperformed the S&P 500 in the second half of 2024 – a significant increase from the 10-year average.
A Shift Away from Tech-Concentrated Markets
The broadening of the rally means that smaller gains in small companies will contribute to smaller overall gains. While this may lead to weaker index returns, Belski’s findings suggest that the average annual return of 8% when top 100 stocks underperform the index is still a respectable outcome.
AI: Not Forgotten, But Not Essential
While AI-driven market growth is no longer the primary focus, strategists still acknowledge its potential impact. Evercore ISI’s Julian Emanuel, for instance, predicts the S&P 500 will reach 6,600 by June 2025, driven by “exuberance” and “speculation.” Wilson also offers a bull case where wide AI adoption boosts margins, pushing the index towards 7,400.
A New Era of Market Confidence
The shift away from AI-centric forecasts marks a significant change in market sentiment. In 2023, recession fears and earnings recessions dominated the conversation. Now, strategists are more optimistic, citing a broadening of earnings growth and a favorable macro backdrop. As we move forward, it’s clear that Wall Street expects a continued rally – with or without AI driving the charge.
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