Here’s where Wall Street sees stocks heading after best 2-year stretch since ’97-’98

On By Littum

After two consecutive years of more than 20% gains for the S&P 500 (^GSPC) — a performance not seen since the late 1990s — Wall Street strategists are predicting a slower pace of gains for the benchmark index in 2025.

With strong earnings expected from a wide range of companies in 2025 and economic growth in the US expected to remain robust, the fundamental story of further market gains remains intact for 2025. But strategists have warned of a more volatile year for stocks, as uncertainty surrounding Federal Reserve interest rate cuts and a new Donald Trump administration lie ahead.

“Bull markets can, will and should slow their pace from time to time, a period of digestion that in turn only highlights the health of the underlying secular bull,” BMO Capital Markets investment strategist Brian Belski wrote in his 2025 outlook. “So we think 2025 is likely (to be) defined by a more normalized return environment with more balanced performance across sectors, sizes and styles.”

Belski initiated a 2025 year-end target of 6,700 for the S&P 500. Given his 6,100 call for the end of 2024, Belski’s forecast puts a 9.8% return in 2025, right in line with the index’s average historical gain.

The median year-end target for the S&P 500 among strategists tracked by Yahoo Finance is 6,600. This would represent an increase of around 12% from the index’s current level. Targets reach as high as Oppenheimer’s 7,100 and as low as Sitfel’s “mid-5000s” projection — the only call among 17 strategists tracked by Yahoo Finance for the benchmark index to fall in the coming year.

In a sign of stocks’ resilience, Goldman Sachs U.S. equity strategist David Kostin and others say the market could rise higher even without the massive outperformance of “Magnificent Seven” tech stocks continuing into 2025.

Through three quarters of reports, the combination of Apple ( AAPL ), Alphabet ( GOOGL , GOOG ), Microsoft ( MSFT ), Amazon ( AMZN ), Meta ( META ), Tesla ( TSLA ), and Nvidia ( NVDA ) grew year-over-year earnings by 33% in 2024 compared to just 4.2% growth for the other 493 S&P 500 companies, as of FactSet data.

But that margin is expected to fall to just 8 percentage points by 2025, according to consensus estimates. This, Kostin believes, will lead to this cohort beating the other 493 stocks by just 7 percentage points in 2025, the narrowest level of outperformance from the Magnificent Seven going back to 2018.

“The narrowing difference in earnings growth rates should correspond to a narrowing in relative stock returns,” Kostin wrote. “While the ‘micro’ earnings growth story supports continued ‘Magnificent 7’ outperformance, several ‘macro’ factors such as economic growth and trade policy lean in favor of the S&P 493.”