The economic forecast for 2025 shows growth, but at a slower pace than 2024. Inflation will remain above the Federal Reserve's target, with President-elect Trump's policies limiting production while stimulating spending. The greatest risk is not a recession but limited production capability as immigration falls.
In particular, consider the remarkable gains in the S&P 500 Index, which was on track to close up more than 25% for 2024, well ahead of Wall Street analysts' forecasts, in one of its strongest annual performances of the last quarter-century.
What experts are predicting: They see the benchmark index climbing to just below 6,700 by the end of 2025, according to FactSet, for a gain of about 13 percent from Tuesday's close. If analysts' models are correct, it would mark a third consecutive year of double-digit annual gains for the S&P 500.
Many experts are a bit more conservative with their projections. For example, for 2024-2033, Charles Schwab projects that U.S. large-cap stocks will average 6.2% compounding returns, U.S. small company stocks will return 6.3%, and international large caps will average 7.6%.
Its analysts predict the S&P 500 will rise 12.6% to end 2025 at 6,666. Savita Subramanian, BofA's head of U.S. equity strategy, expects U.S. cyclical stocks to especially perform well. BMO Capital Markets forecasts the S&P 500 will reach 6,700, reflecting a gain of 13.2%.
Morningstar Multi-Asset Research (MAR) (not public-facing)
MAR's outlook for non-US stocks is substantially better than its case for US stocks. While the 10-year return expectation for US stocks is just 5.6%, it's 9.6% for non-US developed-markets stocks and 11% for emerging-markets equities.
Analysts expect the S&P 500 to rise 14.8% in 2025, according to FactSet. US stocks surged last year as strong economic growth, cooling inflation, a series of Federal Reserve rate cuts and enthusiasm for President-elect Donald Trump's election victory boosted investor optimism.
While the average bull market lasts around 1,000 days, some go on for far longer. For example, one of the more recent surges between 2009 and 2020 lasted for nearly 4,000 days. So there's always a chance that we could have several more years ahead of us before the next slump begins.
As shown below, the S&P 500 was up more than 23% in 2024, bested by both the Nasdaq (up nearly 29%) and the Nasdaq 100 (up nearly 25%). Those gains were boosted by the Magnificent 7 group of stocks (up nearly 67%) along with a handful of other mega-cap stocks (more on that below).
Stock market recovery ahead? Emkay Global in its latest strategy note said the domestic stock market could remain weak till March and that a stability is likely from April onwards, with earnings outlook improving and the FPI selling abating by then. Consumption should bounce back from the second half of 2025, it said.
The Federal Reserve's projections for 2025 call for median economic growth of 2.1% in 2025, which would likely be sufficient to avoid recession risk. Forecasting site Kalshi currently gives a 21% chance of a recession before 2026, this is roughly an average probability compared to history.
In 2025, prices for all food are predicted to increase 1.9 percent, with a prediction interval of -1.2 to 5.2 percent. Food-at-home prices are predicted to increase 0.8 percent, with a prediction interval of -3.7 to 5.8 percent.
The U.S. stock market generally did well in 2024 and may continue strong in 2025. However, we expect to see gear shifts and increased market volatility as potential policies from the incoming Trump administration combine with uncertainty about inflation and global economic strength.
As of today, the markets are currently forecasting just one rate cut in 2025 (www.cmegroup.com). U.S. 10-year Treasury Bond yields remain in the range bound between 4.0% and 5.0%. S&P 500 earnings fail to increase the consensus rate of 14% in 2025 but all 11 S&P 500 sectors post positive EPS growth.
Anticipated 10-year annualized returns for U.S. equities fell 0.4 percentage points as of November 8, 2024, to a range of 2.8% to 4.8%, reflecting hefty valuations.
The benchmark index of US equities is projected to rise to 6,500 by the end of 2025, a 9% price gain from its current level and a 10% total return including dividends, David Kostin, chief US equity strategist at Goldman Sachs, writes in the team's report. Earnings are predicted to increase 11% in 2025 and 7% in 2026.
How long should I hold a stock to make a return on investment? While it varies, holding a stock for at least 3-5 years allows you to ride out market volatility and benefit from long-term growth. Historically, long-term holding increases the chances of positive returns.