To gauge the health of Wall Street, and, by extension, the U.S. economy, investors often look at how the S&P 500 is doing. The S&P 500 index, or Standard & Poor’s 500 index, tracks the performance of 500 leading companies that are publicly listed in the U.S. It’s weighted by market capitalization and covers roughly 80% of the available market cap.
Over the last number of years, the S&P 500 has logged pretty impressive gains. The index climbed more than 23% in 2024, increased 24% in 2023, grew almost 27% in 2021, 16% in 2020, and 28.8% in 2019. These are far larger than the average annual return of 10.5% since being launched in 1957.
How Is the Index Expected to Perform in 2025?
Before U.S. President Donald Trump entered the Oval Office in January of this year, Wall Street was pretty bullish on the S&P 500. Voters thought a President Trump victory and his pro-business policies would be good for stocks. In fact, during his first term, President Trump regularly pointed to the performance of the S&P 500 as indicative of how well his presidency was doing.
Goldman Sachs and Morgan Stanley both predicted the S&P 500 would reach 6,500 by the end of 2025. The most bullish was Deutsche Bank with a 2025 S&P 500 target price of 7,000.
Those projections turned out to be pretty accurate, at least in the opening weeks of 2025. In mid-February, the S&P 500 hit a record high of 6,147.43. But then tariff talk and fears of what a global trade war could do to the U.S. and global economy sent the index lower. By April, it had wiped out all of the gains since February 2024, bottoming at 4,835.04.
This caused many banks to rethink their bullish forecasts.
- Goldman Sachs reduced its estimate from 6,500 to 5,700.
- RBC Capital Markets revised its estimate from 6,600 to 5,500.
- Barclays cut its target from 6,600 to 5,900.
- UBS trimmed its target from 6,400 to 5,800
It seems that market sentiment can change quickly. Since those banks revised their guidance lower just one month ago, the S&P 500 has been slowly climbing higher. The gains seem counter to what’s happening on Main Street.
In the face of trade wars, mounting federal and household debt, and uncertainty coming out of Washington, D.C., the S&P 500 is up a whopping 25% since late April, at above 6,050. The S&P 500 needs to climb just 1.6% to hit a new record high.
How High Do Big Banks Expect the S&P 500 to Go in 2025?
Why have investors turned bullish so quickly? You could point to benign inflation data, solid jobs data, low unemployment, and even some earnings beats from big household tech names including Broadcom, Microsoft, and Oracle.
As a result, a large number of big Wall Street banks have, once again, revised their S&P 500 guidance upward for 2025.
Wall Street Firm S&P 500 Year-End Target
Wells Fargo 7,007
Deutsche Bank 6,550
Morgan Stanley 6,550
Citigroup 6,500
UBS 6,400
Goldman Sachs 6,100
JPMorgan 6,000
Investors may want to take the optimism with a little grain of salt. The U.S. economy continues to face headwinds. The biggest of course are tariffs. Uncertainty has forced the International Monetary Fund to lower its forecast for U.S. gross domestic product (GDP) to 1.8% from 2.7% growth. It’s also down from 2.8% in 2024.
Then there is the way the performance of the S&P 500 is determined. Because it’s weighted by market cap, larger companies have a bigger impact on how the S&P 500 performs. Technology stocks make up an eyewatering 47% of the entire S&P 500 index. One single industry is responsible for half of the Indexes gains and losses. If big names like Microsoft or Apple have a bad quarter, the S&P 500 could tank.
Wall Street is increasingly bullish on the U.S. economy and the S&P 500, but investors should remain more than a little cautious.
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