Wall Street’s forecast for the S&P 500’s peak suggests a nearly 17% increase from current levels by the end of 2025. On Monday, Deutsche Bank’s Chief Global Strategist, Binky Chadha, set a year-end target of 7,000 for the S&P 500, positioning him as one of the most optimistic among strategists.
Chadha attributed his outlook to a robust macroeconomic environment, characterized by low unemployment and resilient economic growth. He explained that strong equity inflows are partly driven by solid cyclical growth, which boosts expectations for corporate earnings and equity returns. Additionally, these inflows are fueled by elevated risk appetite, which is unusually high. With the unemployment rate near 4% and GDP growth at 3%, Chadha believes this rare combination—seen in only 6% of historical periods—justifies a high level of risk appetite. He also pointed to past periods of similar economic conditions, like the 1960s and the latter part of the 1990s, both of which experienced strong equity performance.
When it comes to sectors, Chadha, like other Wall Street strategists predicting a positive 2025, doubts that the next market rally will be led by Mega cap tech stocks, which are facing slowing earnings growth. Instead, he anticipates a gradual sector rotation in 2025 and favors areas that could benefit from continued economic expansion. He remains bullish on cyclical sectors, maintaining an overweight position in Financials, Consumer Cyclicals, and Materials, where multiple positive factors are converging.
Chadha’s team sees a cycle where aspects of expansion, such as capital expenditure outside of tech, increased corporate confidence, and a pickup in mergers and acquisitions (M&A), are yet to materialize. He noted that U.S. capital markets and M&A activity have been subdued due to persistent uncertainties about the business cycle, inflation, domestic politics, and geopolitics, as well as a challenging regulatory environment. However, Chadha believes that greater corporate confidence and a more favorable regulatory climate could spark a rebound in both M&A and capital markets activity.
Ed Yardeni, president of Yardeni Research, also expects the S&P 500 to reach 7,000 by year-end. He recently told Yahoo Finance that part of this growth will be driven by a pro-business Trump administration, which is expected to cut taxes for both corporations and individuals. Additionally, Yardeni anticipates a wave of deregulation that could stimulate further market growth.
