The S&P 500 is primed to continue its bull rally in 2025, though at a slightly slower pace, Barclays strategists said in an outlook published this week.
The strategists, led by the firm's head of US equity strategy Venu Krishna, predict the index will climb another 10% to 6,600 next year, propelled by strong tech earnings growth and a resilient economy.
Their forecast marks a slowdown index's 26% gain so far this year, but they're bullish that the economic environment will continue to prop up the stock market.
"Macro slowing to still-healthy levels should support more US equity upside next year, albeit a deceleration from '23-'24's breakneck pace. Positioning looks constructive, and policy uncertainty creates room for stock and sector selection," the analysts said in a Monday note.
Much of their optimism lies in the robust US economy, which remains strong as consumers—the "central pillar" of the US economy and stock market—enjoy income gains and continue to open their wallets, they said.
"The US economy remains resilient thanks to the still-intact 'virtuous cycle' between rising aggregate incomes and consumption," the analysts wrote.
"Concerns around household financial distress appear overblown; overall delinquency rates remain low and borrowers, as a whole, are burdened with less consumer and revolving credit, as a percentage of income, than prior to the pandemic," they added.
They also point to strong earnings growth potential for Big Tech stocks, which they say Wall Street is likely underestimating by 12%.
They acknowledge, though, that there are some risks stemming from companies' massive AI investment s and investors' eagerness to soon see a return.
Data compiled by Bloomberg shows that tech giants like Alphabet, Microsoft, Amazon, and Meta have already invested hundreds of billions of dollars in AI infrastructure and are poised to spend another $200 billion next year.
The analysts say inflation also poses a risk, especially if President-elect Donald Trump implements his proposals for sweeping tariffs and a crackdown on immigration, both of which would drive up prices through 2026, the analysts say.
That could prompt fewer rate cuts from the Federal Reserve than markets are expecting, adding a hurdle for stocks, they added.
"The risk to equities is not insignificant, especially since Treasury yields are up sharply since September and are approaching levels at which they've historically been a headwind for equities, which could be problematic in the event of fiscal expansion and fewer rate cuts," the analysts said.
They added, though, that the policy roadmap remains uncertain and markets have typically weathered inflation and rates well in recent years.
Barclays joins other big banks in forecasting continued gains in 2025, and the mood is decidedly bullish even as policy and geopolitical headwinds swirl.
RBC analysts predicted the S&P 500 will hit 6,600 points on Monday, while strategists at Deutsche Bank set a target of 7,000. Last week, analysts at BMO said the index will hit 6,700 next year.
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