FX168 Financial News (North America) News On Monday (November 25), Barclays Bank and RBC Capital Markets stock strategy teams both released forecasts. The S&P 500 index is expected to reach 6,600 points by the end of 2025. This target means that the benchmark index will rise about 10.5% over the next 12 months, roughly in line with the long-term average annual return over the past century.

“The data shows that steady growth in economic and corporate profits over the next year, a certain policy downturn, and further easing of inflation (which will keep S&P 500's price-earnings ratio at a high level) are expected to drive the stock market to continue to rise,” Lori Calvasina (Lori Calvasina), head of US stock strategy at RBC Capital Markets, wrote in a report to clients on Monday.

Venu Krishna (Venu Krishna), head of US equity strategy at Barclays, pointed out: “As inflation continues to normalize, macroeconomic resilience increases, and large technology stocks maintain their dominant position in earnings per share (EPS) growth, the S&P 500 index is expected to continue to rise.”

(Source: Yahoo Finance)

Barclays and RBC's latest predictions also reflect Wall Street's general optimism that the stock market will continue to rise next year.

Focus on the risk of continued differentiation in the bull market

One of the most debated topics in the above forecast is whether 2025 will see a trend of expanding revenue distribution from the “Magnificent Seven” (Magnificent Seven), which dominated the first 18 months of the bull market, to other sectors.

Calvasina believes that this is most likely to happen, in line with Goldman Sachs Group's recent forecast that the excess performance of large technology stocks may “narrow” in 2025.

As “growth deals” are overcrowded, capital may flow more to value sectors in the market, according to Calvasina and his team. Meanwhile, valuations outside of big tech stocks are more attractive. Furthermore, earnings estimates for 2025 suggest that earnings growth in large technology stocks may slow, while earnings growth for 493 other S&P 500 stocks is expected to accelerate.

“For value stocks to outperform growth stocks, we need stronger GDP growth in recent years,” said Carvassina. She expects the GDP growth rate to be between 2.1% and 3% in 2025, higher than Bloomberg's current consensus forecast of 2%. “We prefer an extension of market leadership or a shift to the value sector, but this is still a difficult question to decide.”

(Source: Yahoo Finance)

The importance of big tech stocks being profitable

Meanwhile, Krishna pointed out that in the latest quarterly earnings report, companies such as Apple, Google's parent company Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia all exceeded Wall Street expectations, which indicates that investors may not be optimistic enough about the profit growth of large technology stocks in 2025.

“Big tech stocks are likely to continue to be important drivers of S&P 500 earnings per share growth, like this year,” Krishna wrote.

Whether this translates into stock price returns remains to be seen, though.

“The past two earnings seasons have shown that surpassing expectations in earnings per share alone will not necessarily drive the share price up further, especially when the market is concerned about the capital intensity of the next phase of growth — such as artificial intelligence construction —” Krishna wrote.

“Although the potential benefits of further popularizing artificial intelligence have not been underestimated, this trend is still accompanied by a great deal of uncertainty,” he added.

Short-term pullback risk

Although RBC predicts that the S&P 500 will reach 6,600 points by the end of 2025, Carvassina warned that the S&P 500 may risk a 5% to 10% adjustment in the short term.

“We are increasingly concerned that the S&P 500 may experience a 5%-10% correction in the near future, mainly due to high positions, too optimistic market sentiment recently, and a slightly overly high valuation in 2024, which makes the S&P 500 vulnerable to bad news and may need a brief resurgence,” she wrote.

Calvasina said that the further rise in 10-year US Treasury yields, the correction in expectations of the Federal Reserve's interest rate cut in 2025, and the strengthening of the US dollar are some of the major risk factors she is paying close attention to.