Major Wall Street investment banks generally believe that the US stocks will continue to rise in 2025, despite the aggravation of unfavorable factors such as policies and geopolitics, but the market sentiment is clearly bullish.

In their outlook released this week, analysts at Barclays stated that$S&P 500 Index (.SPX.US)$will continue its bullish momentum in 2025, albeit at a slightly slower pace.

Led by the company's US stock strategy director Venu Krishna, analysts predict that the S&P 500 index will climb another 10% next year to reach 6600 points, driven by strong profit growth in tech companies and resilient economy.

The index has already risen by 26% year to date, but they optimistically believe that the economic environment will continue to support the stock market.

"While the macroeconomic slowdown remains at a healthy level, it should support further gains in US stocks next year, although at a slower pace compared to the astonishing pace from 2023 to 2024. The positioning appears constructive, while policy uncertainties create room for stock and industry selection," analysts stated in a report on Monday.

Their optimism mainly comes from the strong US economy, the 'linchpin' of the US economy and stock market - consumer income continues to grow and continue to spend, keeping the US economy strong.

Analysts wrote, 'Due to the still intact 'virtuous cycle' between total income and consumption growth, the US economy still has resilience.'

'Concerns about household financial distress seem to be exaggerated; the overall delinquency rate remains low, and the proportion of borrowers' consumption and revolving crediting as a percentage of income is generally lower than before the epidemic,' they added.

They also pointed out the strong profit growth potential of large technology stocks and believe that Wall Street may underestimate it by 12%.

However, they acknowledge that companies' large-scale investments in artificial intelligence (AI) and investors' eagerness to see quick returns also bring some risks.

Data compiled by Bloomberg shows, $Alphabet-A (GOOGL.US)$ 、$Microsoft (MSFT.US)$、$Amazon (AMZN.US)$and $Meta Platforms (META.US)$ Major technology giants have already invested billions of dollars in AI infrastructure and are preparing to spend an additional $200 billion next year.

Analysts say that the inflation outlook also poses risks, especially with the prospects of President Trump imposing comprehensive tariffs and cracking down on immigration, both of which will drive up prices by 2026.

They add that this could lead to the Fed cutting rates by less than the market expects, becoming an obstacle to the stock market rally.

Analysts say: "The risks facing the stock market are not insignificant, especially considering the significant rise in US bond yields since September, and approaching levels historically seen as resistance to the stock market, which could lead to trouble in a situation of less fiscal expansion and rate cuts."

However, they added that the policy roadmap remains uncertain, and in recent years the market has generally weathered inflation and interest rate tests well.

Apart from Barclays Bank, Royal Bank of Canada analysts predict the S&P 500 Index will reach 6600 points next year, while Deutsche Bank analysts have set a target of 7000 points. Last week, analysts at BMO stated that the index will reach 6700 points next year.

Even the stubborn bearish sentiment of the US stock market by JPMorgan Chase has given way to bullish sentiment, with some of the bank's views now aligning with those of Barclays.

In a report released on Wednesday, the bank issued a forecast for the US stock market in 2025, raising its target price for next year by 55% compared to the end of 2024.

JPMorgan Chase expects $S&P 500 Index (.SPX.US)$ By the end of 2025, it will reach 6500 points, representing an increase of about 8% from the current level. Two years ago, the bank set a target price of 4200 points for 2024.

JPMorgan analyst Dubravko Lakos-Bujas said, "US stocks are expected to continue to benefit from the expanding business cycle, the US exception theory that helps expand the AI cycle and profit growth, the continued loose monetary policies of global central banks, and the support of the Fed gradually reducing quantitative tightening policies in the first quarter."

The bullish view of the bank is in stark contrast to the previous bearish stance, the latter led by former JPMorgan analyst Marko Kolanovic, who left the company earlier this July.

Throughout most of the bear market in 2022, Kolanovic remained bullish on the stock market, only turning bearish when the bull market began in October 2022. Kolanovic persisted in his bearish view throughout the entire process of the S&P 500 index surging 26% in 2023, until his departure this summer.

For Lakos-Bujas, consumer strength is a key reason for his bullish view of the stock market.

The analyst emphasized that American households are benefiting from a tight labor market, holding a record $165 trillion in wealth, and are expected to benefit from potentially lower energy prices in the future.

The report stated that Trump's election victory earlier this month could also boost the stock market and the economy.

Lakos-Bujas said, "The benefits of relaxed regulations and a more business-friendly environment may be underestimated, while the potential for productivity improvements and capital deployment is also underestimated."

JPMorgan also emphasized that investment in AI prosperity is unprecedented and could become a significant driver of the future economy.

"Once the systematic expenditure of comprehensive artificial intelligence support (hardware and software), industrial research and development, and other operating expenses is fully taken into account, the total artificial intelligence expenditure should exceed $1 trillion," Lakos-Bujas said.

"(This expenditure) growing to the scale of the U.S. defense budget (approximately $850 billion) in less than 5 years is simply astonishing," he added.

JPMorgan estimates that next year the earnings per share of the S&P 500 index will reach $270, a 10% year-on-year increase. This assumption is based on an actual GDP growth of 2% from now until the third quarter next year, and the expectation of another 100 basis point rate cut by the Federal Reserve.

"In our view, the continued growth of corporate profits should keep the positive narrative of the stock market unchanged," Lakos-Bujas said.

JPMorgan's shift to a bullish stance came shortly after Morgan Stanley analyst Mike Wilson also turned optimistic, after spending most of the past two years essentially bearish on the U.S. stock market.

Editor/Rocky