Have the 2025 bears disappeared after the S&P 500’s 2024 rally?

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At this time last year, the stock market rally had passed even the most optimistic targets and Wall Street forecasters were convinced that it would not be able to continue the dizzying pace.

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So as strategists at Bank of America Corp., Deutsche Bank AG, Goldman Sachs Group Inc. and other major companies sent their calls in 2024, a consensus emerged: After growing more than 20 percent, as the success of artificial intelligence (AI) launched a tech-stock boom and the economy continues to defy doomsayers, the S&P 500 Index is likely to get only a small gain . As the United States Federal Reserve moves to lower interest rates, the Treasury has appeared ripe to give dividends their money’s worth.

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The following, instead, brought another humbling to Wall Street forecasters who have been caught off guard by market volatility since the end of the pandemic.

Instead of losing steam, prices continued to climb higher. By the end of January, the S&P 500 had already surpassed strategists’ year-end target range. It has hit one record high after another and is on track for a 25 percent gain by 2024, capping the strongest run back in a year since the dot-com bubble of the late 1990s.

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“There’s something magical about it,” said Julian Emanuel, chief equity and math strategist at Evercore Inc., who in the middle of the year abandoned his call for a dip in the S&P 500 and was the first among senior strategists to launch. 6,000 year-end goal. “Trends can last longer and go further than one might imagine.”

The continuation of that trend is a testament to how much the post-pandemic economy has confounded forecasters with slow growth even after the Fed pushed interest rates to their highest in more than a dozen years.

As 2023 draws to a close – and bonds were rallying on speculation that the central bank will have to begin aggressively easing policy – fixed income strategists were predicting that the 10-year Treasury yield would fall to end this year at around 3.8 percent. It rose to a 4.6 percent deficit instead.

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Economic strength has supported the stock market’s rise by lowering corporate profits. At the same time, excitement about AI continued to raise the shares of major technology companies such as Alphabet Inc., Amazon.com Inc., Apple Inc., Meta Platforms Inc. and Nvidia Corp. The convention got another boost from Donald Trump’s. the president’s victory by promising tax cuts and pro-business policies.

The result largely dampened bearish sentiment on Wall Street and prompted some strategists to agree to abandon pessimistic calls.

Mike Wilson of Morgan Stanley & Co. – who in 2023 issued a series of warnings that equities were poised to slide – this May turned bullish on the stock. JPMorgan Chase & Co.’s Marko Kolanovic, who predicted the S&P 500 would fall 12 percent in December, is leaving the bank in mid-2024 after two decades at the firm. In late November, Dubravko Lakos-Bujas, who now heads JPMorgan’s market research team, lowered the previous target and predicted that the S&P 500 will continue to rise next year.

Lakos-Bujas said some of the group’s mistakes reflect the difficulty of anticipating the rise of technology stocks called the Magnificent Seven, which account for the bulk of the S&P 500’s gains. But he said there are strong reasons for optimism from here, citing an easy Fed, a shift in power in Washington, and the Chinese government. determined to keep his economy lean.

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“We have three targets set,” said Lakos-Bujas, who expects the S&P 500 to rise to 6,500 next year, a gain of about 9 percent from Friday’s level. That “changed our thought process about risk assets and equities.”

It is not only hopeless people who are caught off guard. Almost all of the top strategists tracked by Bloomberg have raised their S&P 500 targets at least once this year after the index outperformed them.

When the target was first published in late 2023, even the most powerful forecasters at that time – Tom Lee of Fundstrat Global Advisors LLC and Oppenheimer & Co. Inc. of Oppenheimer & Co. Inc. , a level that has been surpassed in less than three months.

There have been times when it looked like the stock market was due for a turnaround but it proved short-lived. While the S&P 500 slipped from mid-July through early August, it has resumed its march higher as concerns about technology gains fade. A selloff triggered by Fed Chairman Jerome Powell’s hawkish tone this month was also quickly reversed.

The climb, of course, has planted some concerns that the estimate has been stretched too far. That’s great for companies tied to AI, given the uncertainty about whether the technology will deliver on its promise. And the market’s acceptance of Trump’s victory ignores the risks posed by his tariffs and tax cuts, which could revive inflation and disrupt global trade.

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But few say that this meeting is over. In fact, none of the 19 strategists tracked by Bloomberg expect the S&P 500 to decline next year. Even the most bearish forecasts see the benchmark holding firm; the most optimistic – at 7,100 – means a meeting of 19 percent.

Binky Chadha, chief US equity and global strategist at Deutsche Bank, has been among the bullish group on Wall Street for the past three years. His 2025 goal of 7,000 points is among the most ambitious, reflecting his hope for continued economic growth and low unemployment. He said he is not worried about being caught offside.

Forecasting markets means taking it “a year at a time,” he said. “In a typical year, budgets will decline by 3 percent to 5 percent every two to three months. Does that mean you shouldn’t buy stocks? No, they should because they will go back to the top.”

Courtesy of Matt Turner and Lu Wang

Bloomberg.com

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