The S&P 500 is predicted to increase by over 8% between now and the end of 2025, as interest rate reductions in the U.S. and possibly less regulatory oversight under President-elect Donald Trump contribute to the market’s robust performance, according to a Reuters survey of equity strategists.
Ongoing U.S. economic strength is expected to enhance earnings growth, with several strategists highlighting financials as their leading sector choices leading into 2025, partly due to expectations for deregulation under Trump.
Some investors anticipate that Trump’s proposed tax reductions and deregulation efforts will stimulate economic expansion and further market advances.
The standard S&P 500 is forecasted to close 2025 at 6,500 points, based on the median projection from 48 equity strategists, analysts, brokers, and portfolio managers surveyed from November 15-26. This represents an approximate increase of 8.5% from its closing value of 5,987.37 on Monday.
The latest end-2025 estimate is significantly higher than the 5,900 projection made in a Reuters poll conducted in August.
Following the presidential election on November 5, which was won by Republican Trump four years after he was ousted from the White House, stocks surged to unprecedented highs.
Overall, the S&P 500 has jumped approximately 26% so far in 2024, driven in part by substantial gains in Nvidia, Microsoft, and other U.S. giants leading the charge in artificial intelligence technology.
David Kostin, chief U.S. equity strategist at Goldman Sachs, projected in his latest 2025 equity outlook that the “Magnificent 7” group of top-performing stocks, which includes Nvidia and Microsoft, is expected to surpass performance next year, albeit “by a much smaller magnitude.”
He anticipates overall earnings growth for the S&P 500 will drive the index to 6,500 by the end of next year.
According to LSEG, analysts project earnings growth of 14.2% for the entire S&P 500 in 2025, an increase from the 10.2% anticipated this year.
After this year’s rally, the S&P 500 is valued at 22.6 times expected earnings, compared to a historical average of around 18 over the past decade, as reported by LSEG.
“We’re not worried about valuations” due to the anticipated earnings and economic growth, stated Mary Ann Bartels, chief investment strategist at Sanctuary Wealth.
Additionally, she noted that the Trump administration may favor business operations.
Concerns persist regarding a possible inflation resurgence, which could alter the Federal Reserve’s ability to continue reducing rates.
The Fed initiated its easing policy with a significant half-percentage-point rate cut in September, marking its first decrease in borrowing costs since 2020.
Some of Trump’s policies, especially regarding increased tariffs, might lead to elevated consumer prices. On Monday, Trump, who is set to take office on January 20, pledged hefty tariffs on the United States’ three largest trading partners: Canada, Mexico, and China.
Ongoing unrest in the Middle East also remains a concern for investors.
When questioned about the likelihood of a stock market correction of at least 10% in early next year, eight out of 17 poll participants who answered a follow-up question indicated it is likely, while two said it is highly likely. Six responded it was unlikely, and one said highly unlikely.
Among sectors, financials have risen approximately 35% year-to-date, leading the gains among S&P 500 sectors, with technology trailing closely at a 33% increase.
Bank stocks have seen advantages partly due to anticipated increases in merger activity.
Deutsche Bank strategists noted in a recent outlook report that they maintain an overweight position in financials, “where a multitude of tailwinds are converging.”
The poll forecasts the Dow Jones industrial average will close next year at 46,600, after it finished at 44,736.57 on Monday.
