S&P 500 Expected to Surge Over 8% by End of 2025 Amid Interest Rate Cuts and Trump Policies: Reuters Survey
According to a survey conducted, stock strategists anticipate that the S&P 500 will rise by over 8% by the end of 2025. This expectation is based on the forecast that a reduction in U.S. interest rates and potential regulatory rollbacks during Donald Trump’s presidency will support strong market performance.
Continued healthy economic trends in the U.S. are expected to bolster earnings growth. The financial sector is emerging as the top sector choice for 2025, partly due to the likelihood of deregulation under the Trump administration.
Market participants are optimistic that Trump's proposed tax cuts and deregulation will further boost economic growth and market earnings. In the survey, which included 48 strategists, analysts, brokers, and portfolio managers conducted between November 15-26, the median forecast suggests that the S&P 500 is expected to close 2025 at 6,500 points. This indicates an 8.5% increase from the index’s closing figure of 5,987.37 points on Monday. This forecast marks a significant jump from the 5,900 points projection made in August.
Following Trump's victory in the November 5 elections, stocks surged to record levels. The S&P 500 has seen a roughly 26% increase so far in 2024, bolstered especially by gains in U.S. technology giants like Nvidia and Microsoft, which are leading the charge in artificial intelligence technology.
David Kostin, Goldman Sachs' chief U.S. equity strategist, noted that the high-performing "Magnificent Seven" stocks are likely to maintain an upward trend through 2025, albeit at a slower pace.
According to LSEG data, expected earnings growth for the S&P 500 in 2025 is projected at 14.2%, higher than this year's 10.2% growth. Mary Ann Bartels, chief investment strategist at Sanctuary Wealth, expressed confidence in the market's valuation in light of anticipated earnings and economic growth, given that the S&P 500 is currently trading at 22.6 times expected earnings, above the 10-year average of approximately 18.
However, concerns about inflation and its impact on the Federal Reserve's ability to lower interest rates remain. The Fed began its loosening cycle in September with a significant half-point rate cut, marking the first decrease in borrowing costs since 2020. Trump's plans to impose high tariffs on key trading partners could also contribute to rising consumer prices.
Among investor concerns is the potential for a stock market correction early next year, with some survey participants considering a 10% correction to be possible or quite likely.
Financial sector stocks have risen about 35% since the beginning of the year, leading sector gains in the S&P 500. Technology stocks follow closely with a 33% increase. Bank stocks particularly benefited from expectations of increased merger activity.
The survey also provided a forecast for the Dow Jones Industrial Average, indicating that the index is expected to close next year at 46,600 points.