Major Wall Street investment banks (IBs) predict that the S&P 500, one of the leading indices on the New York Stock Exchange, will rise by approximately 13% in the coming year.

Although this growth is less than the 25% increase seen in 2024, it is expected to surpass the index's historical average annual return of 10.23% since its inception in 1957. However, analysts warned that unexpected surges in U.S. Treasury yields could pose risks to the stock market.

According to Bloomberg and other sources, Wall Street institutions have set a consensus target of 6,669.11 for the S&P 500 by the end of 2025. Considering the index closed at 5,906.94 on December 30, this represents an expected increase of 12.9%.

Optimistic Projections from Major Investment Banks
Goldman Sachs, Morgan Stanley, and UBS have each projected the S&P 500 to reach 6,500 by year-end. Bank of America (BofA) estimates 6,666, while Deutsche Bank and Yardeni Research predict 7,000 points. Oppenheimer remains the most optimistic, forecasting 7,100 points.

In contrast, bearish forecasts came from only two sources: Stifel (5,500) and BCA Research (4,450).

Key Drivers: AI and Economic Growth
These projections are based on the assumption that key drivers of 2024’s market performance, such as artificial intelligence (AI) and U.S. economic growth, will continue into 2025. The S&P 500 climbed 24.2% in 2023, followed by a 23.3% rise last year fueled by the AI boom, marking a 53% increase over two years. This represents the best two-year performance since the internet boom of 1997–1998, when the index gained 66%. Wall Street largely agrees that the S&P 500 will see a third consecutive year of gains.

Goldman Sachs forecasts a U.S. GDP growth rate of 2.5% in 2025, exceeding its potential growth rate, with inflation moderating to 2.4%. The firm’s strategists believe that while the Trump administration may introduce tariffs, corresponding tax cuts will likely neutralize any negative impact on corporate earnings.

Sector and Market Trends
Goldman Sachs Asset Management expects equity market returns to expand, supported by resilient economic growth and a potential rate-cut cycle. “High valuations in some sectors encourage diversification, offering undervalued opportunities across U.S. and global markets,” the firm noted.

JPMorgan Asset Management anticipates robust earnings growth in large-cap tech stocks, alongside accelerating performance in other sectors. “This diffusion will support a more inclusive rally in 2025, underpinned by resilient economic fundamentals, policy support, and market trends,” the firm said. Franklin Templeton, however, cautioned against expecting double-digit returns, citing elevated valuations and historical profitability levels.

Interest Rates: A Critical Variable
Interest rates remain a significant wild card. Wall Street warns that slower-than-expected rate cuts by the Federal Reserve or a rise in U.S. Treasury yields above the current 4.5% could increase market uncertainty.

Julian Emanuel of Evercore ISI identified rising long-term Treasury yields as the biggest challenge for the 2025 bull market. “If the 10-year yield surpasses 4.75%, it could trigger a prolonged and deep stock market correction,” he said.

Global Market Trends
According to QUICK FactSet, the global stock market capitalization rose by $13.6 trillion in 2024, with 90% of the increase attributed to rising U.S. equity prices.