Wall Street bets on Wall Street: the most optimistic and the pessimistic for 2025

Wall Street closed the year with slight profit taking that implied falls of 0.07% in the Dow Jones, of 0.43% in the S&P500 and 0.9% in the Nasdaq but it left gains in 2024 of almost 13%, more than 23% and almost 29% respectively. For its part, The long interest rate (10 years) in the US rose to 4.573%. It is worth remembering that these are days with many people from the holiday market. Even so, the polls and surveys in the run-up to the end of the year show a high level of optimism about what’s to come for Wall Street this year.

Nobody on Wall Street expects a bad 2025optimism abounds, the analyst recently noted Phil Rosen. “It’s true that stocks tend to go up most of the time, but the market’s latest two-year streak makes any cliché seem like an understatement. Since bottoming in October 2022, the S&P 500 has returned approximately 66%. The index is on track to achieve consecutive annual returns of more than 20% for the first time in more than two decades, comfortably surpassing the 10% gain seen in an average year. As you can imagine, no one on Wall Street expects stocks to fall in 2025,” former Business Insider columnist and now partner of investor Anthony Pompiliano wrote to clients in Opening Bell Daily (OBD). According to Rosen among the 16 companies tracked by OBD, S&P 500 forecasts for the new year range from 7% to 19% annual returns from last Friday’s closing price.

In this context, the people of UBS maintains the more bearish view with a target price for the end of the year of 6,400, while Oppenheimer is he more optimistic with 7,100 points. While traders at the Kalshi prediction market see a 17% chance that the S&P 500 will end 2025 between 6,400 and 6,599, which is in the middle of the forecasts of Wall Street. For example, there is consensus among Goldman Sachs, Morgan Stanley, JP Morgan and the Citi that the reference index of Wall Street It will reach 6,500 points at the end of the year. At 6,600 points evercore and Barclays, for its part BofA to 6,666 while the HSBC, BMO Capital Markets and RBC Capital Markets they see it in 6,700. At a level higher than these, at 6,840 points, it is projected by Data Treck Research while the most optimistic Wells Fargo, Deutsche Bank, Yardeni Research at 7,000 points (actually Wells at 7,007).

“Depending on who you ask, the combination of Trump 2.0, aggressive Federal Reserve (Fed) policy, inflation and fluctuations in Artificial Intelligence (AI) trading will provide a tailwind or headwind for stocks“, considered Rosen who remembers that Wall Street never actually predicts a bad year. “Even the weakest forecasts for the year ahead in recent decades have allowed stocks to post marginal gains. Those predictions don’t always come true (the S&P 500 has recorded 13 years of losses in the last 50), but it’s rare to find a formal expectation of loss.”

It should be noted that, Over the past 24 years, forecasters’ benchmarks have actually missed by 14% on average, according to Bespoke Investment Research. “Of course, even the poorest track record won’t deter high-paid strategists from publishing their next prediction,” Rosen maintains. Still, historical data favors the optimists: In any 12-month period, stocks have risen three out of four times, and extending that time frame to five years has stocks trading higher almost 90% of the time. “We believe that 2025 will be another year of good stock market returns, but with more volatility as investors re-read every Fed note and we begin to analyze the policy actions being taken in Washington, especially regarding tariffs and taxes,” said Carol Schleif, chief market strategist at BMO Private Wealth.

The risk of a recession in the US in Wall Street forecasts

Of course, when it comes to forecasts, a lot has to do with how they see the probability that the US economy will fall into recession. In this regard it is worth remembering that At the beginning of 2024, most analysts expected the US to fall into recession. Banks like Rabobank predicted a contraction of the US economy, although it once again showed a unexpected resistance and has remained healthyto such an extent that the economists of Oxford Economics (OE) assure that the probability of recession is close to zero: Our recession probability models are approaching their zero limit and are at their lowest levels in more than two years, while leading indicators point to encouraging prospects. Even the head of the Fed, Jerome Powell, noted days ago that he believed it is quite clear that a recession has been avoided. “Most analysts have been predicting a slowdown in growth for a long time, and it still hasn’t happened. The US economy is performing very, very well, substantially better than our global benchmark group. And there’s no reason to think a slowdown is any more likely than it usually is. So the outlook is quite promising for our economy,” he said.

But the outlook was gloomier not only at the beginning of the year, as experts from JP Morgan Chase raised the possibility of a recession in August to 35% from the previous 25% USA at the end of 2024. However, these forecasts did not materialize, with OE explaining that consumers have not shown a corresponding slowdown in spending, while healthy balance sheets and strong wage growth remain supportive. “Revisions to personal income data showed lower-than-estimated consumer savings, but we’re not overly concerned.”they stand out.

As for the outlook, they do not see the modest 3% decline in equity markets as a cause for concern for consumer spending, although they acknowledge that a larger correction in financial markets could dent spending. of households due to the wealth effect. “We have modeled the impact of a 20% drop in equity markets, and although the impact on consumption would not push the economy into recession, GDP growth would slow noticeably and the unemployment rate would be at 4.5% in the first half of next year”they predict.

For him 2025, they consider that the Risks to spending growth in 2025 remain balancedwith the large amount of home equity an upside risk if consumers began to tap into that wealth. “The components that signal certain weakness are manufacturing data and the duration of unemployment. We have long expected a rebound in the manufacturing sector, supported by looser credit conditions, the data center boom and persistent fiscal support that will help sustain growth in 2025“, they add. In this way, they consider that the manufacturing sector will be one of the most affected by the recent rise in rates along the yield curve and the appreciation of the trade-weighted US dollar.

Meanwhile, in the markets, the investors They are demanding a higher term premium to maintain long-term public debtdue to the volatile readings inflation, the inflationary fiscal policy of the Trump administration and the increase in interest rate risk, they explain. “This has pushed rates up as much as 35 basis points across the curve in the last week and 100 basis points from the September low. This will tighten financial conditions, resulting in higher interest rates for companies and mortgage rates for consumers who wish to purchase a home,” they add. In this regard, warn that this increase in interest rates will also have a direct impact on the cost of financing the accumulation of inventories or will increase the opportunity cost of maintaining inventoriessince the return on cash could be more beneficial. “This will affect importers hoping to advance shipments ahead of possible tariffs from the administration Trump,” indicate.

Another aspect to take into account this year will be the labor market, about which OE analysts are not too worried at the moment despite the rise in the duration of unemployment. “He The labor market continues to cool, but is characterized more by slowing job growth than by widespread layoffs. The unemployed are having a harder time finding work, but the slowdown in labor force growth should offset upward pressure on the unemployment rate. One of the worrying indicators is the decline in the employment rate of older people in relation to the population,” they conclude.