Wall Street Banks Boost 2025 U.S. Stock Forecasts to 6,500: Will U.S. Equities Maintain Global Leadership?

The S&P 500 has climbed more than 24% year-to-date, with Wall Street maintaining a bullish stance on U.S. stocks. Analysts predict the benchmark could hit approximately 6,500 points by 2025, suggesting a 10% upside from Tuesday's close at 5,917.

Wilson cites strong corporate earnings and a favorable macroeconomic environment as key drivers for the ongoing bull market through 2025. Despite high current valuations, Wilson believes they are not an impediment, as the market grows increasingly confident in solid fundamentals. He expects the forward P/E ratio to slightly contract from 22.2 to 21.5, with EPS growth of 13% in 2025 and 12% in 2026.

"We expect the recent broadening in earnings growth to continue in 2025 as the Fed cuts rates into next year and business cycle indicators improve," Wilson wrote. "A potential rise in corporate animal spirits post the election could catalyze a more balanced earnings profile across the market in 2025."

Goldman Sachs Chief Equity Strategist David Kostin has lifted his 2025 year-end target for the S&P 500 to 6,500 points, aligning with Morgan Stanley's outlook. Kostin expects a more balanced sector contribution to market growth by 2025, reducing the dominance of the Mag 7.

These seven companies outpaced the index by 63 percentage points in 2023 and sustained their lead into 2024. However, the margin is projected to shrink to 7 percentage points by 2025.

Goldman Sachs analyst Peter Oppenheimer highlighted that last year's rally was fueled by valuation expansions amid easing inflation and potential rate cuts. He recommends portfolio diversification to mitigate downturn risks, suggesting greater exposure to non-tech U.S. firms via indices like the equal-weighted S&P 500.

UBS Global Chief Economist and Strategy Head Arend Kapteyn predicts the S&P 500 will rise to 6,400 points by the end of 2025, with most returns anticipated in the latter half of the next year.

UBS strategists anticipate that U.S. equities will continue to lead global markets over the next 12 months. "While a few months of U.S. underperformance is possible, over a 12-month period we expect U.S. stocks to outperform Europe, and Europe to do better than Emerging Markets," they wrote.

Additionally, Franklin Templeton Asset Management emphasizes that earnings growth is crucial for sustained market gains, anticipating increased volatility in the coming year. The firm noted, "The market’s current valuation is considerably above average at 24x 2024 earnings and 21x 2025 earnings. When stocks are expensive, earnings—and earnings growth—matter."

Franklin Templeton forecasts, "The super cycles will keep the economy chugging along, and AI should soon show up in better labor productivity numbers. The market could finish 2025 with a double-digit gain, helped by solid earnings growth and further-expanding multiples."

Investors should remain cautious of potential risks and uncertainties. While a Trump victory is perceived as a boost for U.S. equities due to his proposed corporate tax cuts, some analysts warn that his policies, such as tariffs and immigration restrictions, could spur inflation and interest rates, posing risks to the stock market.