What to expect from stocks in 2025

New York
CNN
—

Stocks had a blockbuster 2023 and 2024. Will 2025 be one three-peat?

After two years of sizable gains, Wall Street expects the good times for the markets to continue this year — just not on the massive scale investors have been treated to lately.

Wall Street forecasts reviewed by CNN show that most strategists expect double-digit percentage growth for the S&P 500 in 2025, though more moderate than in 2024. Analysts expect the S&P 500 to rise 14.8% in 2025, according to Fact set.

US stocks rose last year as strong economic growth, slowing inflation, a series of interest rate cuts by the Federal Reserve and enthusiasm for President-elect Donald Trump’s election victory boosted investor optimism. Tech and AI stocks were the stars of 2024 and are largely expected to lead growth again in 2025.

Still, Wall Street analysts warn of potential downsides in 2025. Uncertainty about tariff policies proposed by Trump, potentially resurgent inflation and looming geopolitical tensions are among the issues that could hurt stock market growth, according to Bank of America.

“I’m bullish on equities for 2025, but with high valuations and the maturing bull market, I don’t think investors should expect quite as spectacular returns next year as we’ve seen last year,” Jurrien Timmer, director of global macro at Fidelity Investments said in a December 18 memo.

Of course, forecasting is only a game for the iron-stomached, and predictions can often miss the mark. In 2024, many analysts raised their price forecasts for the S&P 500 during the year as the index rose higher than expected.

The S&P 500 ended 2024 with an annual gain of about 23% after rising 24% in 2023, marking the first time since 1997 and 1998 that the index has closed with back-to-back gains of more than 20%, according to FactSet- data.

The booming stock market has not only benefited traders: Gains in the S&P 500 boost retirement savings and serve as a general signal of economic stability.

But Wall Street doubts another year of gains north of 20% is achievable. Forecasts from major banks including UBS, Goldman Sachs and Bank of America for the S&P 500 in 2025 range from around 10% to 14% growth – certainly healthy gains by any standard.

Among the more bullish analysts, Christopher Harvey, head of equity strategy at Wells Fargo, expects the S&P 500 to reach 7,007 by the end of 2025 — a gain of about 19%.

Wall Street expects continued stock market gains as it anticipates strong economic growth, corporate earnings and an upcoming business-friendly administration under Trump.

Heading into 2025, some analysts see US stocks’ impressive growth as evidence of a new era in technology and artificial intelligence, with sustainable valuations and strong future earnings growth to support a continued rise.

Dan Ives, a tech bull and senior analyst at Wedbush Securities, said in a Dec. 30 note that he expects tech stocks to rise 25% in 2025 due to less regulation under the Trump administration and a continued “Goldilocks fund” for Big Tech and Tesla.

Ives picked Nvidia, Microsoft and Palantir as his top three technology winners for artificial intelligence in 2025. All were also big winners last year.

But the ever-present potential for a volatile environment under the Trump presidency, the potential for a change in Fed policy, and a market that has met very little resistance could spell trouble for stocks in 2025.

This year, the Fed largely stopped inflation without plunging the economy into recession. Still, inflation has not been completely tamed. In December, the Fed issued what some economists called a “hawkish cut,” signaling that after the central bank cut interest rates, it might not do so again for a while. After its last policy meeting in 2024, the Fed revised its outlook for its preferred inflation gauge for 2025, raising it from 2.1% to 2.5%.

Concerns about inflation and the Fed sent stocks tumbling in early December, and they have struggled to regain their momentum ever since. The Dow on December 18 posted its longest losing streak since 1974.

Traders expect only an 11% chance of a rate cut in January, according to CME FedWatch tool.

“The Fed’s admitted uncertainty about monetary policy actions in 2025 combined with the expectation of only two cuts (rather than four) in 2025 compounded investor uncertainty and concern, triggering profit-taking this year versus delays in the new year,” said Sam Stovall , chief investment strategist at CFRA Research.

As the new year begins, investors will be glued to news on key issues — such as potential tariffs — that could make or break markets under the Trump administration.

“The main wild card on the table for 2025 will be the potential implementation of tariffs,” David Sekera, chief U.S. market strategist at Morningstar, said in a December 3 memo.

An expanded sale could undermine US economic growth, it noted Mark Zandi, chief economist at Moody’s Analytics, in a post on X. Zandi said he believes the economy is “very vulnerable to a selloff in the stock market.” He described how stock market growth has been driven by wealthy households choosing to spend more and save less.

“If the stock market falters, something I’ve argued is a serious risk, these wealthy households would certainly respond by saving much more and spending less,” Zandi said.