What To Expect From the US Stock Market in 2025 | Global News Avenue

The stock market just had a stellar year, and Wall Street is optimistic that U.S. stocks will continue to rise in 2025.

The S&P 500 is up 23% in 2024, following a 24% gain the year before, marking the first time since the late 1990s that it has posted two consecutive years of +20% returns. Growth in 2025 is not expected to be as strong, but market watchers say the outlook is generally positive.

Here are some analysts’ expectations for the stock market in the year ahead.

Profit growth will expand and drive stock returns

Corporate earnings are expected to be the main driver of stock returns in 2025.

Earnings growth has been narrow over the past two years. A surge in spending on artificial intelligence and massive cost cuts have helped Big Tech’s profits soar. Meanwhile, profits for the S&P 493, the S&P 500 index that excludes the Big Seven, shrank in 2024, even though JPMorgan analysts expect the group to post double-digit earnings growth in 2025.

The Big Seven’s combined profit growth is still expected to outpace the rest of the index, although profit margins are the lowest in seven years, according to Goldman Sachs’ forecast.

That’s one reason analysts at Bank of America Equity expect the equal-weighted S&P 500 to outperform the cap-weighted index.

The artificial intelligence industry may enter a new stage

Artificial intelligence has been Wall Street’s hottest buzzword for more than two years, and analysts believe it will continue to be so.

“We see the construction and adoption of AI creating opportunities across industries,” BlackRock analysts wrote in their 2025 outlook.

Goldman Sachs analysts had similar expectations. They say the AI ​​craze has gone through two “phases”: “Phase 1” focused solely on Nvidia (NVDA), whose advanced chips have made it a key driver of the artificial intelligence boom; “Phase 2” is slightly larger in scope and includes companies critical to the construction of artificial intelligence infrastructure.

Goldman Sachs analysts predict a “third phase” in 2025, with investors turning their attention to companies monetizing artificial intelligence. They expect software and services companies to be the main beneficiaries of the next phase of AI development, citing companies including tech giant Apple (AAPL) and Salesforce (customer relationship management) to small-cap stocks such as Yext (external) and box (Box) as strategic stock picking.

Small and mid-cap stocks likely to outperform

Some analysts expect a renaissance in small- and mid-cap stocks, but they note it could easily be derailed or delayed.

Smaller companies rely more on floating rate debt, which means They benefit the most When rates fall, the Fed is expected to continue cutting rates. They are also less likely than larger companies to operate internationally, which could insulate them from geopolitical tensions and potential pressures on global supply chains.

Small and mid-cap stocks may also benefit from a looser regulatory environment under incoming President Trump, who is expected to challenge corporate mergers and acquisitions (Mergers and Acquisitions) Not as aggressive as Biden.

However, Trump’s policies could also undermine or delay the rally in small and mid-cap stocks. Economists warn of Trump’s tariffs, immigration policies May cause inflation And keep interest rates high, which is a problem both for mergers and acquisitions and for small company balance sheets.

Stocks could be in for a bumpy 2025

Donald Trump will return to the White House in January with a “historic mission” to disrupt the status quo. He promised major changes to trade policy, taxes, regulations, immigration and government spending.

Analysts have struggled to predict how these changes will affect the economy, in part because of “the fluidity of Trump’s policy positions, his unconventional governing style and the lack of detailed, consistent framework to guide his remarks.” prospect.

What’s certain is that this year will be full of twists and turns. Optimism about the economy and Trump’s easing administration pushed stocks to record highs. They are also trading at historically high valuations, which Goldman Sachs analysts note “often exacerbates market declines during shocks.”