Important points
Stocks just had a great year, and Wall Street is optimistic that U.S. stocks will continue to rise in 2025.
The S&P 500 index rose 23% in 2024 after rising 24% last year, marking the first time since the late 1990s that it returned +20% for two consecutive years. Although 2025 profits are not expected to be as strong, market participants say the outlook is generally positive.
Here are some things analysts can expect from the stock market in the year ahead.
Earnings growth expands the breadth of stock returns and drives profits
Corporate earnings are expected to be the main driver of stock returns in 2025.
Earnings growth has been modest over the past two years. Profits at mega-tech companies are soaring thanks to a surge in spending on artificial intelligence and deep cost cuts. Meanwhile, while the S&P 493 (S&P 500 excluding the Magnificent Seven) saw its earnings shrink in 2024, JPMorgan analysts expect the group to post double-digit earnings growth in 2025. .
Goldman Sachs forecasts that the Magnificent Seven’s total earnings growth is still expected to outperform other indexes, albeit by the lowest margin in seven years.
That’s one reason why Bank of America equity analysts expect the equal-weighted S&P 500 index to outperform its market-capitalization weighted index.
AI trade may enter a new phase
Artificial intelligence has been the hottest buzzword on Wall Street for more than two years, and analysts expect that to continue.
“We see the creation and deployment of AI creating opportunities across all sectors,” BlackRock analysts wrote in their 2025 outlook.
Goldman analysts have similar expectations. They say the AI boom has gone through two “phases.” “Phase 1” focused solely on Nvidia (NVDA). NVDA’s advanced chips were key to the AI boom. “Phase 2” was a bit broader and included companies essential to building the AI infrastructure.
Goldman analysts predict a “Phase 3” in 2025, when investors will focus on companies monetizing AI. They predict that the main beneficiaries of the next stage of AI evolution will be software and services companies, from tech giants Apple (AAPL) and Salesforce (CRM) to Yext (YEXT). He mentioned a variety of companies, including small-cap stocks such as and Box (BOX). As a strategic stock.
Small and mid-sized stocks may outperform
Some analysts are hoping for a revival in small- and mid-cap stocks, but they say that could easily be derailed or delayed.
Small businesses are more dependent on variable-rate debt, meaning they benefit most when interest rates fall, and the Federal Reserve is expected to continue lowering rates. They are also less likely to operate internationally than larger companies, which may distance them from geopolitical tensions and potential strains on global supply chains.
Small- and mid-cap stocks may also benefit from a relaxed regulatory environment under President-elect Trump, although that administration is expected to be less aggressive in pursuing mergers and acquisitions (M&A) than the Biden administration. There is.
However, President Trump’s policies could derail or slow the rally in small and mid-cap stocks. Economists have warned that President Trump’s tariff and immigration policies could raise inflation and keep interest rates high, creating problems for both M&A and small business balance sheets.
2025 could be a turbulent year for stock prices
Donald Trump will return to the White House in January with a “historic mission” aimed at overturning the status quo. He has promised dramatic changes to trade policy, taxes, regulations, immigration and government spending.
Analysts at Charles Schwab write that these changes will affect the economy in part because of “the fluidity of President Trump’s policy positions, unconventional governing style, and lack of a detailed and consistent framework to guide his rhetoric.” They have a hard time predicting what the impact will be, Charles Schwab analysts wrote in a 2025 paper. outlook.
One thing is for sure: this year will be full of twists and turns. Optimism about the economy and President Trump’s accommodative government have pushed stocks to record highs. They also trade at historically high valuations, and Goldman analysts note that “market drawdowns are typically large in times of shock.”
