S&P 500 technical levels and forecast: what to expect in 2025

Are “next-year” forecasts worth the paper they’re written on?

Before diving into an S&P 500 forecast for next year, it’s essential to understand that such predictions should often be taken with caution.

The 2024 outlook from major banks, brokers, and research providers serves as an example: the average S&P 500 forecast was 4861, with the median at 4875. As of 27 November 2024, the S&P 500 is trading at 6017, over 23% higher and even 11% above the highest forecast.

The reason for these off-target predictions lies in the dynamic nature of markets. Their volatility makes long-term forecasts, whether fundamental or technical, inherently challenging. Moreover, forecasts often rely on the most recent data and are heavily influenced by prevailing market sentiment.

For instance, ​Deutsche Bank's Chief Global Strategist predicts the S&P 500 will reach 7000 next year, citing solid investor demand and strong corporate activity such as buybacks. However, these are the same drivers that have propelled the current bull market. Will they continue to hold in 2025?

With this in mind, here’s an outlook for the S&P 500 and the bullish and bearish factors shaping its trajectory

​Year-end 2024 Wall Street S&P 500 targets

Bullish reasons for and against another year of strong gains

Historical precedent for sustained gains

• Since 1950, only 2 out of 9 instances of back-to-back 20% annual returns have resulted in negative returns the following year
• The S&P 500 has hit 52 all-time highs this year and shows continued momentum, having rallied 72% from its October 2022 low

US market dominance

• US stock market capitalisation exceeded $60 trillion for the first time
• The S&P 500’s 27% gain this year far outpaced European markets’ 5% rise

Strong positive sentiment

• Consumer confidence in stocks is at its highest since 1987, at 51.4%
• Stock market expectations have doubled over the past two years.

While positive sentiment and strong performance may suggest continued gains, overexuberance could pose risks. Confidence driven by Donald Trump’s recent election win and deregulation hopes may not sustain long-term growth.

​S&P 500 returns after back-to-back 20% returns (1950 – current)

​US market capitalisation

Bearish reasons for and against another year of strong gains

Valuation concerns

• The top 10 S&P 500 stocks trade at a forward price-to-earnings (P/E) ratio of ~30x, higher than the dot-com bubble
• AI-related valuations now exceed those seen during the 2000 tech bubble

Insider selling signals

• The seller-to-buyer ratio among insiders is at an all-time high of 6x, surpassing levels before the 2022 bear market
• Warren Buffett’s Berkshire Hathaway holds record cash levels of $325.2 billion, signalling caution

Economic warning signs

• Large bankruptcies in the US are at a 14-year high, with 570 filings year-to-date
• Retail sales are down 5% from their peak when adjusted for inflation
• Leading Economic Indicators (LEI) have declined in 30 out of the past 31 months.

These signals indicate a potential disconnect between the stock market and the broader economy.

Outlook for 2025

Upside scenario

If the S&P 500 sustains its current momentum into January, further gains could push the index towards the 6500 mark. However, achieving a third consecutive year of 20%+ returns seems unlikely.

Downside scenario

If January delivers negative performance, a 10%+ correction could unfold, deeper and more prolonged than August’s pullback. In this case, the index could decline to the 5400–5000 range.

​S&P 500 daily candlestick chart

S&P 500 technical analysis

The S&P 500 remains in an uptrend channel from October 2023 to 2024 on the weekly candlestick chart. However, the weekly Relative Strength Index (RSI) has diverged negatively since March, which could be a warning of a potential reversal.

Key downside levels

• A fall below the August low of 5120 could threaten the long-term uptrend, bringing the January 2022 peak and April 2024 low of 4954–4818 into focus
• An early warning sign of reversal would be a daily close below the 5667–5651 support zone, which includes the July peak and recent November low

Key upside levels

• If momentum persists, the uptrend channel resistance at 6159 could represent the next target. By the end of Q1 2025, this resistance would intersect around 6700. However, such a steep pace of gains is unlikely to continue.

For now, the short-, medium-, and long-term uptrends remain intact, but a balanced approach to 2025 predictions is warranted.

S&P 500 daily chart