TLDR:
- Wells Fargo sets highest Wall Street S&P 500 target of 7,007 for 2025, predicting 26% rise
- Multiple strategists expect US GDP growth to exceed current 2.1% consensus forecast
- Shift predicted from “Magnificent Seven” tech stocks to broader market participation
- Value stocks and GDP-sensitive sectors expected to perform well
- Historically, GDP growth between 2.1-3% correlates with positive stock market returns 70% of the time
Wall Street’s leading strategists are painting an optimistic picture for 2025, with Wells Fargo taking the lead by setting the highest S&P 500 target among major firms. The bank’s equity strategist Christopher Harvey projects the index will reach 7,007 by the end of 2025, suggesting a potential increase of more than 26% from current levels.
This bullish forecast aligns closely with other major Wall Street institutions, with Deutsche Bank and Yardeni Research both predicting the S&P 500 will hit 7,000 by the end of next year. These projections are built on expectations of continued economic strength and expanding corporate margins.
The positive outlook stems from several key factors, including anticipated Federal Reserve rate reductions and a favorable regulatory environment. Harvey’s team at Wells Fargo expects these conditions to support ongoing market gains throughout the year.
A notable shift is expected in market leadership for 2025. While 2024 saw the “Magnificent Seven” tech stocks dominating market gains, analysts predict a broader rally that will benefit the other 493 members of the S&P 500. This forecast is reflected in expectations for strong performance from the S&P 500 equal-weighted index.
RBC Capital Markets’ head of US equity strategy, Lori Calvasina, points to a recent pattern of economists underestimating US economic growth. This trend represents a reversal from pre-pandemic years when forecasts typically overshot actual performance. Based on this history, Calvasina projects GDP growth between 2% and 3%, higher than the current consensus range of 1% to 2%.
Bank of America’s outlook adds weight to these predictions, with their economics team forecasting US economic growth at an annualized rate of 2.4% in 2025, exceeding the Bloomberg consensus estimate of 2.1%. Their strategy team has set a year-end S&P 500 target of 6,666.
The focus on economic growth has led Bank of America to recommend overweight positions in GDP-sensitive sectors. These include Financials, Consumer Discretionary, Materials, Real Estate, and Utilities. The firm’s strategist Savita Subramanian particularly favors companies with healthy cash return prospects and strong connections to the US economy.
Historical data supports the relationship between economic growth and market performance. Since 1947, when GDP growth has ranged between 2.1% and 3%, stocks have shown positive returns 70% of the time, with average gains of nearly 11%. In contrast, during periods of lower growth between 1.1% and 2%, stocks advanced only 40% of the time and showed an average decline of 3.4%.
Deutsche Bank’s Bankhim Chadha, who predicts the S&P 500 will reach 7,000 by the end of 2025, notes that the current combination of low unemployment and strong GDP growth has only occurred 6% of the time historically. Previous such periods, during the 1960s and late 1990s, saw robust equity performance.
Market strategists acknowledge some potential concerns, including bullish market sentiment and high stock valuations. Harvey initially considered taking a contrarian stance but concluded the data supported a positive outlook for 2025.
Corporate activity is expected to play a role in market performance, with predictions of increased merger and acquisition activity in late 2025. This factor adds another potential driver for market gains beyond basic economic growth.
The shift in focus from artificial intelligence (AI) in 2024 to GDP in 2025 reflects evolving market dynamics. While AI drove much of the market narrative in 2024, broader economic growth is expected to take center stage in the coming year.
Wells Fargo’s analysis suggests corporations will continue to see margin expansion throughout 2025. This projection, combined with expectations for faster economic growth than current consensus estimates, forms the foundation for their market-leading forecast.
Bank of America’s strategy emphasizes individual stock opportunities over index-level gains, suggesting active management could play an important role in capturing market returns in 2025.
Current forecasts indicate next year could mark a departure from the concentrated market gains seen in recent years, with benefits spreading across a broader range of sectors and companies.
Stay Ahead of the Market with Benzinga Pro!
Want to trade like a pro? Benzinga Pro gives you the edge you need in today's fast-paced markets. Get real-time news, exclusive insights, and powerful tools trusted by professional traders:
- Breaking market-moving stories before they hit mainstream media
- Live audio squawk for hands-free market updates
- Advanced stock scanner to spot promising trades
- Expert trade ideas and on-demand support
