FX168 Financial News Agency (North America) reports that Fundstrat holds an optimistic outlook for the stock market in 2025, but its predictions are not as optimistic as in previous years.

The company's research director, Tom Lee, one of Wall Street's most persistent Call forecasters, still expects the stock market to rise in 2025, but far less than in 2023 or 2024.

Lee set two price targets for the S&P 500 Index in 2025: a mid-year target of 7,000 and an end-of-year target of 6,600.

According to Lee, the stock market could rise 16% from its current level in the first half of this year, but most of those gains may evaporate in the second half before a year-end recovery.

"In 2025, there will be strong tailwinds supporting Stocks. But we see this as a 'two-year' story," Lee stated in his outlook for 2025.

Lee expects the S&P 500 Index to rise 8% in 2025, which is consistent with the historical annual return rate of the stock market and slightly above Wall Street's average end-of-year target of $6,539 for 2025.

Two supportive factors for next year's stock market include the Federal Reserve supporting the market through further rate cuts as long as inflation remains subdued, staying committed to its labor-related mission.

Another factor is Trump; if elected, President Trump will implement lower taxes and other business-friendly policies, which should boost business sentiment and increase corporate profits.

In addition, Lee stated that under the leadership of the Trump administration, mergers and acquisitions.it should thrive.

According to the statement, these factors should push investors' capital from Cash / Money Market and ​Bonds towards Stocks, and they may even trigger a return of 'animal spirits', which helps to drive stock prices up.

But Lee is not all positive, he emphasized two major risks that could shake the market next year.

Lee explained that for us, the downside risks are: DOGE is too effective, GDP declines due to spending cuts, [and] tariffs are actually implemented, affecting GDP.

These two risks, combined with the historical precedent of weak stock market returns in the second half after two consecutive years of ROI of 20%, suggest to Lee that the stock market may experience a significant correction in the second half of this year.

(Image source: Bloomberg)

Lee predicts that the S&P 500 Index will retreat from this year's peak of 7,000 points in the second half of the year to around 6,000, and then rebound to 6,600 points.

Lee's target is based on an estimated EPS of $300 for the S&P 500 Index in 2026, with a earnings multiple of 22 times.

In terms of which sectors of the stock market to focus on, Lee prefers financial, industrial, Bitcoin-related stocks, and Small Cap stocks.