Will S&P 500 ETFs See Slow Gains in 2025 After Two Strong Years?
After two successive years of more than 20% gains for the S&P 500 — an achievement not seen since the late 1990s — Wall Street strategists anticipate a slower pace of gains for 2025. The S&P 500 was up about 24% in 2023 and 23.3% in 2024. Meanwhile, the Dow Jones and the Nasdaq gained 12.9% and 28.6%, respectively, in 2024.
Cooling inflation, a dovish Fed, an AI boom, a tech rally and improvement in corporate earnings have led the key Wall Street stock index to log more than 20% gains in back-to-back years. But will the rally continue in 2025?
Strong earnings across a broad range of companies and resilient U.S. economic growth are expected to support continued market gains in 2025. However, strategists warn of heightened volatility amid uncertainties surrounding Fed rate cuts and potential policy changes under a new Donald Trump administration.
“Bull markets can, will, and should slow their pace from time to time,” noted BMO Capital Markets chief investment strategist Brian Belski in his 2025 outlook. “This period of digestion accentuates the health of the underlying secular bull,” as quoted on Yahoo Finance.
BMO Capital also noted that year three of a bull market typically yields returns below the gains of the first two years and underperforms the historical average return for the S&P 500. Belski predicts a year-end target of 6,700 for the S&P 500, implying a 9.8% gain for 2025, which aligns with the index’s historical average return.
The median target among strategists is slightly lower at 6,600, with projections ranging from Oppenheimer’s bullish 7,100 to Stifel’s bearish “mid-5000s” call (read: What Lies Ahead for S&P 500 ETFs in 2025?).
While the “Magnificent Seven” tech stocks — Apple AAPL, Alphabet (GOOGL, GOOG), Microsoft MSFT, Amazon AMZN, Meta META, Tesla TSLA, and NVIDIA NVDA — drove much of 2024’s gains, their dominance is expected to moderate in 2025.
Earnings growth for these seven companies outdid the rest of the S&P 500 in 2024, but this margin is projected to narrow significantly in 2025. Goldman Sachs’ chief U.S. equity strategist David Kostin suggests that this shift could lead to more balanced performance across the broader market, as quoted on Yahoo Finance.
Strategists are optimistic about U.S. economic growth in 2025, with projections exceeding the Bloomberg consensus of 2.1% GDP growth. Lori Calvasina of RBC Capital Markets believes robust GDP growth could shift investor focus from growth to value stocks. Bank of America’s Savita Subramanian similarly favors “GDP-sensitive companies,” recommending overweight positions in Financials, Consumer Discretionary, Materials, Real Estate, and Utilities, as quoted on Yahoo Finance.
