Even if the S&P 500 doesn't repeat this year's stellar run in 2025, the benchmark index will score attractive double-digit returns, Deutsche Bank said.
In a Monday note, analysts projected that the S&P will reach 7,000 by the end of next year, indicating around 17% upside from Monday's close of 5,969.
"We see robust equity (and bond) inflows continuing, boosted by strong risk appetite, though are factoring in some slowing in the pace," said a team led by chief US equity and global strategist Bankim Chadha.
The index has gained 25% year-to-date, driven higher by popular mega-cap tech trades and encouraging data on labor, inflation, and GDP growth.
Looking to 2025, Deutsche analysts predict that the market's demand-supply backdrop will remain supported by robust investor activity and strong corporate buybacks. The bank estimates companies will buy $1.3 trillion of their own stock back from investors, up from $1.1 trillion this year.
There are also a number of indicators showing that the equity cycle hasn't yet peaked.
"We see various aspects of the cycle still to come, including a move from de- to re-stocking; a pickup in capex outside Tech; a manufacturing recovery; rises in consumer and corporate confidence; a recovery in capital markets and M&A activity; a pickup in loan growth; and rest of the world growth," Chadha wrote.
Meanwhile, the Trump administration's policy mix could have both positive and negative components, and the sequence of these policy proposals will matter. Deutsche expects tax cuts and deregulation to come ahead of tariffs.
S&P earnings growth, the chief fuel of market upside, should rise 11.6% next year to $282, compared to a projected earning-per-share rate of 11% for 2024.
"Alternatively, if global growth picks up to the upper end of its historical range, earnings growth could rise to 17%, taking S&P 500 EPS to $295," the bank said.
Analysts suggested that sector-focused investors remain overweight in financials, consumer cyclicals and materials. Deutsche is underweight on healthcare, staples, and telecom.
Deutsche's outlook puts it squarely ahead of several Wall Street bulls. While UBS and Morgan Stanley both anticipate the S&P 500 to reach 6,500 next year , investing firm BMO is gearing up for it to hit 6,700.
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