bold-capitalization In the past 15 years, U.S. stocks have done better than almost every other market. This is not likely to change in 2025, say some of the biggest financial banks in the world.
As the S&P 500 index SPX -0.38% looks set to give investors a total return of more than 25% for the second year in a row, which is a rare feat, Wall Street analysts have told investors to keep their money in shares of the biggest American companies.
Teams from Deutsche Bank, Goldman Sachs Group, UBS Group, Barclays, Société Générale, and JPMorgan Chase & Co. have all told investors to put their attention on the U.S. next year. However, some people see value in other places as well.
As investors move away from the Big Tech stocks that led the market in 2023 and 2024, most people think the best chances will be found in changing market leadership. A lot of people, including Dubravko Lakos-Bujas’s global markets strategy group at J.P. Morgan, think that financials and utilities could benefit.
Lakos-Bujas also thinks that Japanese stocks are a good buy, but he is much less optimistic about the eurozone and developing markets.
But that doesn’t mean there aren’t risks, even in the U.S.
The biggest American companies are worth a lot of money, and there are still a lot of questions about what the new administration will do in Washington. These things could throw the rise off track or at least make things more volatile. Some people are also worried about rising Treasury yields because Trump’s plan to raise tariffs is generally thought to cause inflation.
But U.S. stocks should continue to do well because the economy is still strong and the gains of the AI revolution are not being shared evenly.
JPMorgan’s Lakos-Bujas wrote in a study that policy changes in 2025 could make the U.S. exceptionalism story more unstable, but opportunities are likely to be greater than risks.
FactSet data shows that the U.S. market capitalization made up more than half of the value of the global equity market. This comes at a time when many people are calling for stocks to go up. This is because U.S. stocks have the biggest part of the global equity market since late 2001.
Someone who works as a strategist at SocGen, Albert Edwards, recently used an old acronym to describe the idea that U.S. stocks are the only game in town: “TINA,” which means for “there is no alternative.”
Prices are high, but so are hopes for earnings.
Most optimistic Wall Street strategists talked about how the biggest U.S. companies have a lot of benefits. Better earnings growth could keep prices going up and explain the recent rise in multiples that has made valuations go up.
In an interview with MarketWatch, Venu Krishna, top U.S. equity strategist at Barclays, said, “The earnings expectation in the U.S. is quite healthy.”
Big Tech should continue to drive most of this growth, but other companies are slowly but surely coming up.
“Big Tech remains the important factor for strong earnings.” However, the rest of the market is moving in the right way, albeit much more slowly than anticipated.
The Trump administration wants to cut business taxes and loosen rules, which could help companies make even more money while also spending more than they earn, which is good for the economy.
A good market for stock pickers
One idea that came up a lot was dispersion, which means that the sectors and companies that are driving the market higher in 2025 might not be the same as those that investors were used to seeing in 2023 and 2024. Lakos-Bujas said that a market where different styles, themes, countries, and sectors don’t do as well could make it easy for people to pick stocks.
This has already begun to take shape in the second half of 2024, when more sectors joined the rise. Financials have even gone up more than IT because people are excited about Trump’s plan to loosen regulations.
Of course, people who work on Wall Street haven’t completely ruled out the benefits of trading abroad. Some people have said that foreign stocks haven’t been very good at spreading risk lately.
But some people, like Chief Global Strategist David Kelly and his team from JPMorgan’s asset management business, said that low prices in foreign markets are just too good to pass up.
Lakos-Bujas, his coworker, agreed that a convergence trade might start later in 2025 because of the huge difference in prices and the changing global view.
“For the time being, there is still no good alternative to U.S. stocks,” he said.
The uniqueness of American tech
The U.S. economy has been the center of worldwide technological progress for many decades.
In the past, this “tech exceptionalism,” as Krishna called it, meant being one of the first people to use and build the internet. Being ahead of the curve when it comes to AI and cloud computing is what it means today.
This is not likely to change any time soon, which is one reason Krishna thinks U.S. markets will keep leading the way. There is still a lot of doubt about how much companies will get back when they invest in AI, but over time, it is likely to increase productivity and make U.S. companies even more profitable.
Recently, the U.S. economy has also shown that it can handle some of the problems that China and the eurozone are having. The U.S. job market has only slowed down a little, even though the Federal Reserve raised interest rates sharply to fight a strong spike in inflation.
The latest numbers show that GDP grew at a rate of 2.8% in the third quarter. This was faster than other developed markets, even though industrial activity stayed low for a long time.
Many people think that the rate of global economic growth will slow down next year. If that happens, U.S. stocks could still do well.
UBS Group analysts say that this is because slower growth in other countries makes U.S. stocks even more appealing to investors from other countries.
The UBS team also said that American families have more of their net worth in stocks than their counterparts abroad. This makes the “wealth effect” even stronger when the market is going up.
“The stock market’s positive effect on wealth is stronger in the U.S. than in other places because more households own stocks there than in other places,” the UBS team said.
Strategists at Deutsche Bank recently set a price goal of 7,000 for the S&P 500 by the end of 2025. This is one of the more optimistic predictions on Wall Street.
The team mostly thinks that the risks that lie ahead are related to Trump’s plans for the country. Should the new government decide to impose high tariffs on all imports, things could go badly.
Deutsche thinks that if this doesn’t happen, a second Trump administration will help businesses make more money and the economy as a whole. However, his trade policies might make it harder for other markets and economies to stay up.
There are still risks.
When there is a lot of agreement on what will happen in the coming year, Wall Street’s predictions rarely come true. This is especially true when not many people are ready to make bold predictions. That was at least the case in 2023, when the U.S. stock market boomed faster than many experts thought it would.
President of Spectra Markets Brent Donnelly said that most of the predictions for the coming year seemed to be based on what has already happened in the second half of 2024.
The author of a recent piece shared with MarketWatch said, “I will write much more about the 2025 outlook, but for now it seems that forecasters are herding around a base case that looks like an extrapolation of 2024.”
“This doesn’t make sense to me since the new’shock and awe’ administration will start with leaks in the first few weeks of January and new rules soon after.”
That could mean that the real chances are for people who are willing to go against what most people think.
After the president-elect threatened to put tariffs on Mexico, Canada, and China on Tuesday, U.S. stocks ended the day up. Even so, the S&P 500 SPX -0.38% and the Dow Jones Industrial Average DJIA -0.31% both set new highs at the end of the day. The Nasdaq Composite COMP -0.60% ended the day higher, but it was still not a new high.
Wednesday’s stock market started down. The S&P 500 and Nasdaq both took a small drop, but the Dow kept going up.
