What to expect from the US stock market in 2025

Key Takeaways Wall Street analysts generally expect stocks to post another year of gains in 2025, as a strong economy and falling interest rates boost corporate profits. The gap between the Magnificent Seven and the rest of the market is expected to narrow as more companies begin to reap rewards. the advantages of artificial intelligence. Small- and mid-cap stocks could perform well in the coming year thanks to lower interest rates, as well as a looser regulatory environment under new President Donald Trump. Some analysts, however, warn that market volatility could increase after Trump returns to the White House, given uncertainty over how his policy approach could affect the economy.

Stocks are coming off a record year and Wall Street is optimistic that U.S. stocks will continue to rise in 2025.

The S&P 500 gained 23% in 2024 after rising 24% the previous year, its first two-year streak of +20% returns since the late 1990s. Gains are not expected to be as robust in 2025, But market observers say the outlook is generally positive.

Here's some of what analysts say you can expect from the stock market in the year ahead.

Profit growth to expand and boost stock returns

Corporate profits are expected to be the main driver of stock returns in 2025.

Profit growth has been weak over the past two years. Increased spending on artificial intelligence and a series of cost cuts have allowed mega-cap tech profits to soar. Meanwhile, the S&P 493 or the S&P 500 without the Magnificent Sevens would see earnings decline in 2024, although JPMorgan analysts expect the group to post double-digit earnings growth in 2025.

The Magnificent Sevens' overall earnings growth is still expected to outpace that of the rest of the index, although the margin is the weakest in seven years, according to Goldman Sachs forecasts.

That's one reason Bank of America equity analysts expect the equal-weighted S&P 500 index to outperform its cap-weighted counterpart.

AI business could enter a new phase

Artificial intelligence has been the buzzword on Wall Street for more than two years now, and analysts believe this trend will continue.

We see the development and adoption of AI creating opportunities across all industries, BlackRock analysts wrote in their 2025 outlook.

Goldman analysts have similar expectations. They say the AI ​​craze went through two “phases”: Phase 1 focused solely on Nvidia (NVDA), whose advanced chips made it the main catalyst for the AI ​​boom; Phase 2 was slightly larger and included companies critical to building AI infrastructure.

Goldman analysts predict that 2025 will mark Phase 3, during which investors will turn their attention to companies that monetize AI. They expect software and services companies to be the biggest beneficiaries of the next phase of AI evolution, and cited companies ranging from tech giants Apple (AAPL) and Salesforce (CRM) to small caps such as Yext (YEXT) and Box (BOX). as a choice of strategic securities.

Small and mid caps could outperform

Some analysts expect a small- and mid-cap renaissance, although they note that it could easily be derailed or delayed.

Small businesses rely more on variable-rate debt, meaning they benefit more from falling interest rates, and the Federal Reserve is expected to continue lowering rates. They are also less likely than larger companies to operate internationally, which could insulate them from geopolitical tensions and potential strains on global supply chains.

Small and mid-caps could also benefit from a more relaxed regulatory environment under new President Trump, whose administration is expected to challenge corporate mergers and acquisitions (M&As) less aggressively than Biden's.

However, Trump's policies could also derail or delay the recovery of small and mid-caps. Economists warn that Trump's tariff and immigration policies could fuel inflation and keep interest rates high, a problem both for mergers and acquisitions and for small business balance sheets.

2025 could be a tough year for stocks

Donald Trump will return to the White House in January with what he calls a historic mandate “to break with the status quo.” He promised sweeping changes in trade policy, taxes, regulation, immigration and government spending.

Analysts have struggled to predict how these changes will affect the economy, in part because of the fluidity of Trump's policy positions, his unconventional governing style and the lack of detailed, consistent frameworks guiding his statements. Charles Schwab analysts wrote in their 2025 outlook.

What is certain is that the year will be full of twists and turns. Optimism about the economy and Trump's dovish administration have pushed stocks to record highs. They also trade at historically high valuations, which Goldman analysts say are generally increasing.[s] the extent of the market decline during a shock.

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