The S&P 500 is Set to Reach 6,500 in 2025, According to Wall Street's Previously Most Bearish Bank

JPMorgan has joined the growing list of institutions offering predictions for 2025, unveiling a new target for the S&P 500. Traditionally cautious in its outlook, the U.S. bank has shifted its stance slightly after the departure of its bearish chief market strategist, Marko Kolanovic, earlier this year. The new forecast aligns with peers, estimating the S&P 500 to reach 6,500 by the end of 2025.

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Market analysts tracked by MarketWatch suggest a median target of 6,600 for the index. Deutsche Bank leads with the most optimistic projection of 7,000, while UBS holds a more conservative outlook at 6,400.

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JPMorgan's team, led by Dubravko Lakos-Bujas, anticipates a supportive environment for stocks in the coming year. They expect the Federal Reserve to reduce interest rates to 3.75% and predict similar actions from other central banks, fostering favorable borrowing conditions. Combined with robust household and corporate balance sheets, these factors could help sustain the business cycle and prevent significant downturns.

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An additional growth driver is the surge in capital expenditure spurred by the ongoing race in artificial intelligence (AI). Insights from JPMorgan’s recent AI Datacenter conference revealed optimism among industrial companies. These firms reported strong demand, healthy pricing, high margins, and extended order backlogs with visibility extending to 2027 and beyond.

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The capital markets are also expected to see heightened activity. Lower interest rates and the regulatory framework promised by the incoming Trump administration could create a fertile ground for small- to mid-cap stocks. In this setting, companies might find it easier to secure funding and strike deals. Furthermore, the administration’s plans to boost oil production could help reduce energy prices, benefiting businesses and consumers alike.

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JPMorgan’s analysts believe these trends will broaden corporate earnings growth. They forecast S&P 500 earnings per share (EPS) to reach $270 in 2025, marking a 10% year-over-year increase.

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However, the team acknowledges potential headwinds. The balance between the benefits of deregulation and tax cuts against risks from reduced government spending, trade tariffs, and stricter immigration policies remains uncertain. For instance, they estimate that a 60% tariff on all Chinese imports could reduce S&P 500 EPS by as much as $15.

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Valuation concerns also weigh on the outlook. A combination of 10% annual EPS growth and a 33% rise in the S&P 500 since 2022 has made U.S. equities relatively expensive, with equity risk premia hitting a 22.5-year low.

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Despite these challenges, Lakos-Bujas and his team maintain an optimistic stance, emphasizing opportunities over risks. They foresee heightened geopolitical uncertainty and a complex policy landscape but argue these dynamics will create avenues for investors.

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For 2025, JPMorgan predicts greater dispersion across sectors, investment styles, and market themes, which they believe will favor stock pickers. They recommend overweight positions in financials, citing potential deregulation and increased capital markets activity, and in small- and mid-cap stocks. While remaining largely neutral on technology stocks, particularly semiconductors and hardware due to potential tariff exposure, they favor communication services and software within the tech sector.

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Utilities, they argue, present an attractive risk/reward profile, driven by demand from datacenters and electric vehicles (EVs). The team also advises managing short positions carefully, warning of a possible momentum reversal and increased retail investor activity.

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Mixed Opening for U.S. Markets

U.S. equity markets opened mixed, reflecting shifting conditions in other asset classes. The S&P 500 dipped 0.25%, the Dow Jones Industrial Average rose 0.18%, and the Nasdaq Composite dropped 0.76%. Treasury yields, particularly the 10-year benchmark, declined to 4.266%, while the U.S. dollar index weakened, oil prices edged up slightly, and gold traded around $2,653 per ounce.

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Key Economic Data Ahead

A busy day of U.S. economic data lies ahead, with Thursday’s usual schedule moved up due to the Thanksgiving holiday. A key release will be the personal consumption expenditure (PCE) price index, the Federal Reserve’s preferred inflation gauge, expected at 10:00 a.m. Eastern. Earlier reports showed weekly jobless claims at 213,000, a 0.2% month-on-month rise in durable goods orders for October, and a revised third-quarter GDP growth of 2.8% on an annualized basis.

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Earnings Drag on Tech Stocks

Earnings reports from major tech companies, released late Tuesday, have not been well-received. Shares of Dell Technologies, Workday, Autodesk, HP, and CrowdStrike all saw declines in premarket trading, with losses ranging from 5% to over 13%.

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On the geopolitical front, a U.S.-brokered ceasefire between Israel and Hezbollah has taken effect.

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Markets in the U.S. will be closed on Thursday for Thanksgiving and operate on a shortened schedule for Black Friday.

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