Only One Strategist Sees the S&P 500 Falling in 2025

In finance, dissenters are often derided or ignored, and will only be vindicated after the fact. Such may be the case with a lone strategist who’s bucking the bullish trend and bracing for a rough ride in 2025.

November’s Consumer Price Index (CPI) continued a gradual upward trajectory, and the month’s Producer Price Index, a wholesale inflation gauge, jumped from 2.4% in October to 3% in November. Yet, the Federal Reserve has basically declared victory over inflation and is almost guaranteed to cut interest rates by 25 basis points this month.

Not only that, but November’s Consumer Price Index indicated that core inflation increased by 3.3% for four consecutive months. Somehow, though, we’re all expected to believe that U.S. inflation is headed to the Fed’s 2% target.

The perma-optimists will undoubtedly point out that inflation has subsided since 2022, but they’re missing the point here. As BlackRock global CIO of fixed income Rick Rieder explains, the “bulk of this progress is behind us now and inflation may remain stubbornly sticky near current levels for a time.”

Nonetheless, the major large-cap stock market indexes remain near all-time highs after two years of sharp, relentless rallies. Consequently, the vast majority of U.S. equity strategists are busy scrambling to upward-revise their S&P 500 price targets for 2025.

Courtesy: Yahoo Finance

This is what that scramble looks like. From Wells Fargo to Deutsche Bank, well-known analyst firms have set 7,000 as the new normal for the S&P 500 in 2025.

For better or for worse, these strategists are pricing in a whole lot of expected economic growth for the coming year. Wells Fargo’s Christopher Harvey provides a typically ultra-optimistic example, stating his belief that the S&P 500 will end next year at 7,007 and envisioning a “cyclical opportunity catalyzed by upward GDP revisions.”

In a similar vein, Bank of America analysts favor “GDP sensitive companies” in 2025. They’re not quite as bullish as the Wells Fargo strategists, but the Bank of America analysts still anticipate the S&P 500 reaching 6,600 by 2025’s end.

Not every analyst is all-in on large-cap equities for the coming year, though. Daring to take a contrarian view, Stifel chief investment strategist Barry Bannister believes that the Federal Reserve will have to hold interest rates high as U.S. economic growth weakens next year.

With that, Bannister expects to see an eventual pullback in the current stock market rally. Hence, his S&P 500 price target for year-end 2025 is 6,070, suggesting a year-on-year decline or at least a flatline.

Courtesy: @biancoresearch

That’s a particularly bold prediction as it contravenes those of the other major strategists. It also contradicts the vastly confident market-related sentiment among households in the U.S.

Moreover, Bannister believes the Fed will reduce interest rates by 25 basis points at each of the next two FOMC, though that’s not a very controversial take. However, he then expects the Federal Reserve to enact a long pause on rate cuts due to sticky inflation and “zero fiscal visibility.”

Of course, Bannister could be wrong and America’s GDP could actually get a huge boost with “upward revisions” next year. Anything’s possible – but it feels like the best-case scenarios have already been priced into large-cap stocks by now.

And if Bannister’s bearish call turns out to be correct, don’t be surprised if the other strategists follow suit and publish pessimistic projections of their own. Then, the true contrarian outlook would be a bullish one… but we’ll cross that bridge if and when we get there.