S&P 500 fundamental and technical 2025 forecast
S&P 500 fundamental and technical forecast for next year, now that the index made its 52nd record high this year and for the first time closed above the psychological 6,000 mark.
Are “next-year” forecasts worth the paper they are written on?
Before embarking on a S&P 500 forecast for next year, one has to understand that these need to be taken with a pinch of salt.
The 2024 outlook by major banks, brokers and research providers is a case in point: the average S&P 500 outlook came in at 4861 and the median at 4875. As of 27/11/2024 the S&P 500 is trading at 6,017, over 23% higher and also 11% higher than the highest forecast.
Year-end 2024 Wall Street S&P 500 targets
The reason for being so spectacularly off-target has to do with the fact that markets are by their very nature dynamic and change volatility frequently which makes long-term forecasts, be they fundamental of technical, difficult to make.
Also, forecasts tend to be made with the latest data to hand and are influenced by market sentiment at the time the forecast is made.
Deutsche Bank's Chief Global Strategist, for example, believes that the S&P 500 will hit 7,000 next year, boosted by solid demand for stocks by investors as well as strong corporate activities, such as buybacks and other spending. Aren’t these the same underlying factors which have driven the bull market to date, though?
With the above caveat in mind, here is our S&P 500 forecast and the reasons for and against it.
Reasons for and against another year of strong gains
BULLISH FACTORS:
1. Historical precedent for sustained gains:
- Only 2 out of 9 instances since 1950 saw negative returns after back-to-back 20% yearly gains
S&P 500 returns after back-to-back 20% returns (1950 – current)
- The S&P 500 has already hit 52 all-time highs this year and still shows strong upward momentum
- The index has rallied by 72% from its October 2022 bottom
2. US market dominance:
- The US stock market cap exceeded $60 trillion for first time ever
- The S&P 500 is significantly outperforming other markets (27% gain vs European markets' 5%)
US market capitalisation
3. Strong positive sentiment:
- Consumer confidence in stocks is at a record high (51.4%) since 1987
- Stock market expectations have doubled over past 2 years
These expectations and consumer confidence may point to over exuberance though. The fact that they have been driving the US stock market higher, boosted by Donald Trump’s recent US presidential election win, and deregulation hopes, doesn’t mean that this upward momentum will necessarily continue next year.
BEARISH FACTORS:
1. Valuation concerns:
- The top 10 S&P 500 stocks are trading at forward price-to-earnings ratios (P/E) of ~30x, higher than during the dot-com bubble
- Artificial intelligence (AI)-related valuations are exceeding the year 2000 tech bubble levels
- The S&P 500 has "almost never been so expensive" outside of the top 10 stocks
2. Insider selling signals:
- The ratio of insider sellers to buyers is at the highest level ever recorded (6x)
- It exceeds the previous high before the 2022 bear market
- Warren Buffett's Berkshire Hathaway is holding record cash ($325.2B) and selling stocks
3. Economic warning signs:
- Large bankruptcies in the US are at a 14-year high (570 filings year-to-date)
- Retail sales are down 5% from their peak when adjusted for inflation
- Leading Economic Indicators declining for 30 out of 31 months
- The consumer discretionary sector showing weakness with 90 bankruptcy filings
These are all signs of potential market disconnect from the broader economy.
The data suggests a market with strong momentum but mounting fundamental concerns, creating a complex outlook for 2025.
If the last few months’ strong upward momentum were to be seen in January, the odds would probably favour further upside in the S&P 500 but even then we do not expect to see a third year of 20%+ returns. Nonetheless, a rise to the 6,500 mark may well be possible in such a scenario.
If January were to turn out to be a negative month for the S&P 500, though, a protracted over 10% market correction may well ensue. It would then likely last longer than the August correction and may turn out to be deeper. In this case a possible downside target zone may be found between the 5,400 to 5,000 levels.
S&P 500 technical analysis
While the S&P 500 continues to make new record highs within its October 2023 to 2024 uptrend channel on the weekly candlestick chart, the weekly Relative Strength Index (RSI) continues to diverge and has been doing so since March. This negative divergence will by some be seen as a warning sign of a possible future trend reversal.
S&P 500 weekly candlestick chart
For the long-term uptrend to come under threat, though, a fall through the August low at 5,120 would need to occur, though. Failure there would likely put the January 2022 peak and April 2024 low at 4,954-to-4,818 back on the plate.
An early warning sign of a bearish reversal taking shape would be a fall and daily chart close below the key 5,667-to-5,651 support area. It consists of the July peak, August high and October as well as current November lows. While it underpins, the medium-term uptrend will remain intact.
S&P 500 daily candlestick chart
If the current bullish momentum were to persist, the uptrend channel resistance line at 6,159 and rising would represent the next upside target. By the end of the first quarter (Q1) of 2025 it would intersect at 6,700. It is unlikely, though, that the steep uptrend of the past year or so is going to continue at the same pace during 2025.
Either way, for now the short-, medium- and long-term uptrends all remain intact.
This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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