After two years of impressive gains, Wall Street strategists are projecting a more tempered outlook for stocks in 2025, signaling a shift toward a more normalized market environment. The S&P 500 (^GSPC), which has seen annual gains exceeding 20% in both 2023 and 2024, is expected to moderate its pace of growth next year.
BMO Capital Markets’ chief investment strategist, Brian Belski, has set a 2025 year-end target of 6,700 for the S&P 500, suggesting a 9.8% upside from current levels. Meanwhile, Morgan Stanley’s Mike Wilson anticipates a 12-month target of 6,500, representing an 11% increase for the index. These targets reflect a slowdown in the rapid growth seen in recent years but are still optimistic about the market’s longer-term prospects.
This anticipated shift comes after a historic rally. If the S&P 500 finishes 2024 with a gain above 20%, it would mark the first time since the tech bubble of the late 1990s that the index has achieved consecutive years of such high returns. Despite this remarkable growth, both Belski and Wilson agree that 2025 will likely see a more measured return for the stock market.
According to Belski, the rapid gains of the past two years are unsustainable in the near term. “Bull markets can, will, and should slow their pace from time to time,” he noted, explaining that such a “digestive period” ultimately strengthens the overall bull market. In Belski’s view, 2025 will be defined by a more balanced performance across sectors, sizes, and investment styles, as the market returns to its historical average growth rate.
One key factor behind this shift is the stabilization of inflation, interest rates, and employment, all of which have contributed to recent market volatility. As these factors stabilize, Belski believes US stock fundamentals have the best chance to normalize. He predicts that a high single-digit annual price gain, paired with earnings growth in the high single digits to low double digits, will set the stage for a more sustainable market trajectory.
In addition to these factors, the Federal Reserve’s expected interest rate cuts, combined with strong US economic growth, provide an optimistic outlook for the year ahead. Both Belski and Wilson expect to see a broader stock market rally, with more companies contributing to earnings growth beyond the current tech-driven surge. This shift could be catalyzed by an uptick in corporate optimism following the 2024 elections, which may help create a more balanced earnings profile across the market.
While 2025 may not offer the same outsized returns as the past two years, the forecast points to a steady, healthier stock market characterized by more consistent and diversified growth across sectors. For investors, this means a year of more measured, but still promising, returns.
