After a stellar performance in 2024, Wall Street analysts are projecting another year of solid gains for the S&P 500 in 2025, though expectations vary widely among major financial institutions. The benchmark index, which has already notched two consecutive years of double-digit returns, is forecast to continue its upward trajectory, albeit at a more moderate pace.
The consensus among analysts points to the S&P 500 reaching approximately 6,679 by the end of 2025, representing a roughly 10% increase from current levels. This projection aligns remarkably well with the index’s historical average annual return of 10.23% since its inception in 1957.
While Goldman Sachs has set a conservative target of 6,500 (implying a 9% price gain plus dividends), Deutsche Bank and Yardeni Research have staked out more bullish positions, targeting 7,000 – nearly a 17% increase from current levels.
Two-thirds of financial advisors surveyed expect a 10% rise in the index, though many caution investors about potential market volatility. This optimism comes after the S&P 500 significantly outperformed initial expectations in 2024, ending more than 15% above the consensus forecast of 5,132 made at the end of 2023. The index is on track to post gains exceeding 20% for the second consecutive year, a feat not achieved since the 1990s.
Key Factors that Can Drive the S&P 500 in 2025
Several key economic factors underpin the positive outlook for 2025. Corporate earnings are expected to grow by 11% in 2025 and 7% in 2026, while revenue growth is projected at 5%, aligning with nominal GDP expectations. Economists forecast real GDP growth of 2.5% and anticipate inflation cooling to 2.4%, creating a supportive environment for market expansion.
Market dynamics are expected to shift in 2025, with analysts predicting a rotation away from mega-cap tech leadership toward broader market participation. The anticipated increase in M&A activity, driven by improving financial conditions and potential regulatory easing, could provide additional support for stock prices.
The market is also expected to benefit from strong cyclical growth and elevated risk appetite, particularly with unemployment remaining near 4%.
Valuations Remain a Concern
The incoming administration’s trade policies, including potential targeted tariffs on automobiles and Chinese imports, are expected to influence market performance in 2025. Additionally, the market’s focus is anticipated to shift from AI infrastructure to broader AI application rollout and monetization, potentially creating new opportunities across various sectors.
However, valuations remain a concern, with the S&P 500’s P/E multiple having increased by 25% over two years to reach 21.7x, suggesting that continued earnings growth will be crucial for sustaining market gains.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
About the author
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird’s US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
