Wall Street seems to be very optimistic about next year's US stocks.

Deutsche Bank strategist Bankim Chadha recently released a forecast for US stocks. He expects the S&P 500 index to hit 7,000 points by the end of next year, which means the index will rise 17% from current levels. This makes him one of the most optimistic Wall Street strategists predicting a further rise in the US stock market.

This forecast far exceeded those of Goldman Sachs Group and Morgan Stanley's peers. The two companies recently raised their expectations and the index is expected to reach 6,500 points by the end of 2025.

Expectations for future earnings are optimistic

The S&P 500 index has accumulated a cumulative increase of more than 25% this year, and is expected to return more than 20% for the second year in a row — this increase has only occurred four times in the past 100 years.

Driven by tech giants, economic recovery, slowing inflation, and expectations of the Federal Reserve easing monetary policy drove the index to a record high. Chadha has been optimistic about the US stock market throughout the year and has raised the target for the index several times.

“We expect the steady and strong momentum to continue until 2025, with double-digit earnings per share growth,” Chadha and his team wrote in a Monday report.

Earnings per share of the S&P 500 are expected to rise 11% to $253 in 2024, in line with typical growth outside of a recession, Chadha said. By 2025, this figure could rise to $282. But he added that if global economic growth were to return to the upper limit of the historical range, earnings growth could rise 17%, making Standard & Poor's earnings per share as high as $295.

Additionally, Ed Yardeni (Ed Yardeni), president of Yardeni Research, also expects the S&P 500 to reach 7,000 points by the end of this year. He said part of the reason is that the Trump administration is more pro-business and the return of the “animal spirit.”

Continue to overmatch the finance, cyclical consumer goods and materials sectors

From an industry perspective, like other Wall Streeters who released their 2025 outlook, Chadha is skeptical about whether the next round of market gains will be led by big tech stocks in the face of slowing profit growth. Instead, he expects growth to “continue to slowly rotate in 2025,” and favors areas he sees likely to benefit from continued economic expansion.

At the sector level, he believes that cyclical inclination should be maintained and continue to overmatch the financial sector (many leading factors are converging), the cyclical consumer goods sector, and the materials sector.

Although the focus of 2024 is mainly on signs of a slowdown in the US economy, Chadha's team believes that in this cycle, there will still be expansion in various areas, such as capital expenditure other than technology, increased corporate confidence, and a rebound in mergers and acquisitions.

Chadha wrote, “US capital markets and M&A activity have been low due to ongoing uncertainties in business cycles, inflation, domestic politics, and geopolitics. An unfavorable regulatory system is clearly also a drag. The combination of increased business confidence and a more relaxed regulatory system could trigger a rebound in mergers and acquisitions and capital market activity.”