Against the backdrop of the US economy maintaining resilience and the Federal Reserve entering a cycle of interest rate cuts, potential favorable factors such as regulation and tax cuts after Trump takes office have become important reasons for the US stock market to further look higher next year.
Recently, Wall Street institutions have been intensively adjusting their outlook reports, raising their target forecast for the S&P 500 index to above 6500 points. Following Goldman Sachs, Morgan Stanley, and Wells Fargo, Barclays and Royal Bank of Canada also joined the bullish camp on the 26th.
Barclays: 6600 points, continue to be bullish on technology stocks
Barclays Bank has raised its target for the S&P 500 index next year from the previous 6500 points to 6600 points. Venu Krishna, the head of US stock strategy at the bank, wrote that as inflation continues to normalize, the macro economy is resilient, and large tech companies maintain their leading position in profit growth, the index should continue to rise.
The American consumer is the core pillar of the economy and stock market. The credit card data and back to school spending trends may suggest a slight slowdown in growth, but the fundamentals of income, wealth, and savings appear robust, "the report said.
At the same time, Krishna pointed out that in the most recent quarter's earnings report, the tech giants Apple, Google, Microsoft, Amazon, Meta, Tesla, and Nvidia all exceeded Wall Street's predictions, which makes investors believe that they may be too cautious about the profit growth of large tech companies in 2025. Tech giants may play a crucial role in the profit growth of the S&P 500 index, just like this year.
However, the upcoming Trump administration's plan to increase tariffs and tighten immigration policies carries risks, which could start pushing up inflation rates in the middle of next year. "The risks faced by the stock market are not insignificant, especially since September, the yield of treasury bond has risen sharply, which is close to the historical adverse level for the stock market. If the fiscal expansion and interest rate reduction are reduced, this may become a problem. However, it is difficult to determine the timing and scale of Trump's policy implementation, and the market has withstood the test of inflation and interest rates well in the past few years (except that when the Federal Reserve raised interest rates in 22 years, we think it is very unlikely to raise interest rates from here)." The bank's estimate of earnings per share of the S&P 500 Index in 2025 is $271, slightly lower than the median forecast of Wall Street of $275.
Barclays predicts that by 2025, most industries will be affected by inflation rates and slower growth outside the United States. The bank has upgraded the ratings of the US industrial and health sectors, while downgrading the ratings of consumer essentials and utilities.
Royal Bank of Canada: 6600 points, but there may be a 5% -10% adjustment
Lori Calvasina, head of US equity strategy at RBC Capital Markets, wrote in a report to clients: "The data tells us that another year of robust economic and earnings growth, some political tailwinds, and some additional easing of inflation (which will keep the P/E ratio of the S&P 500 index high) can continue to drive stocks higher in the coming year
Kalwasina believes that overcrowded growth stock trading will lead to more capital flowing into value stocks in the future, while sectors outside of large tech stocks will have more attractive valuations.
The report states that the profit outlook for 2025 continues to indicate a slowdown in earnings growth for large tech stocks, while earnings growth for the remaining 493 S&P stocks is expected to accelerate. "In order for value stocks to outperform the market, we need to see GDP run hotter." He predicts that US GDP will grow in the range of 2.1% to 3% by 2025.
It should be noted that Kalvasina expects a high possibility of short-term adjustments. "We are more and more worried that the S&P 500 index may have a 5% -10% pullback in the near future, mainly because of the rising positioning, the recent emotional foam and the 2024 valuation somewhat beyond expectations, which makes the S&P 500 vulnerable to bad news, perhaps just need to breathe." At the same time, the continuous rise of the 10-year treasury bond yield, the further reduction of the Federal Reserve's expectation of interest rate cuts in 2025 and the strengthening of the dollar are the headwinds he closely watched.
Goldman Sachs: 6500 points, tech giants maintain strong position
Goldman Sachs predicted last week that the S&P 500 index would reach 6500 points by the end of next year, driven by strong economic growth and corporate profits.
David Kostin, the chief stock strategist of the bank, wrote in a report that by 2025, the real gross domestic product (GDP) of the United States will grow by 2.5%, and corporate profits will increase by 11%. At the same time, both upward and downward risks for the US stock market have been listed, namely that a more moderate Federal Reserve may boost the stock market, but Trump's tariff plan and higher bond yields may put pressure on it.
Goldman Sachs believes that the seven tech giants will still outperform the other 493 companies, but the lead will narrow to 7 percentage points, which will be a seven-year low. "The 'micro' earnings story supports continued excellent performance, but the risk balance from more 'macro' factors such as economic growth and trade policies tends to favor 493 companies
Goldman Sachs suggests that investors should allocate benchmark weights to the seven major stocks (which account for 31% of the S&P 500 index), while buying mid cap stocks with a P/E ratio of only 16 times, but expected earnings growth to be comparable to that of large cap stocks.
From the perspective of industry sectors, Goldman Sachs suggests increasing holdings in materials, software, services, and utilities. The report states that although the economic background is favorable for cyclical stocks, the market has already priced most of them. Software has the lowest dependence on macroeconomic background, and the initial valuation of materials is reasonable. If economic growth slows down and bond yields decrease, utility companies provide defensive exposure.
Fuguo Bank: 6600 points, yield curve steepens
Last Friday, Wells Fargo released a report stating that Trump's second term will drive the US economy to strengthen, and the possible policy shift supports the optimistic forecast of a target of 6600 points for the S&P 500 index by 2025.
Our forecast for stronger economic growth and policies aimed at reducing regulatory costs should help increase the earnings per share of the S&P 500 index to $275, "said the global investment strategy team of Wells Fargo in a client report
In addition, Trump's support for tariffs and goods produced in the United States may also benefit local companies whose business is mainly concentrated in the United States. However, due to the economic improvement in early 2025 and the potential increase in inflation caused by tariffs and immigration restrictions that may accumulate later, long-term US Treasury yields will rise. "We will raise the yield targets of the 2025 10-year and 30-year treasury bond by 50 basis points to 4.50% -5.00% and 4.75% -5.25% respectively. These yield curve target changes further steepen the curve."
Morgan Stanley: 6500 points, valuation not resistance
Morgan Stanley has set the benchmark target price for the S&P 500 index at 6500 points by the end of 2025 in its latest annual outlook, while the target price for the bull market scenario is as high as 7400 points.
Morgan Stanley believes that the current valuation of US stocks is high because the market is increasingly convinced that the fundamentals are sound. But when investors see solid macroeconomic support for fundamentals, valuations may be higher in the next six months.
Mike Wilson, a star analyst and chief US stock strategist at the institution, believes that earnings per share of the S&P 500 index will increase by 13% next year and another 12% in 2026. We expect that as the Federal Reserve cuts interest rates next year and business cycle indicators continue to improve, recent profit growth will continue to expand in 2025. The potential rise of corporate 'animal spirits' after the election (as we saw after the 2016 election) may promote a more balanced profit situation in the entire market in 2025
On the other hand, American exceptionalism will continue. The P/E ratio of the S&P 500 index will slightly narrow from 22.2 times to 21.5 times in the next 12 months, but still remain above the 10-year average. Our research suggests that significant valuation compression is rarely seen during periods of above average profit growth and loose monetary policy. The report states.