Wall Street’s high water mark for the S&P 500 (^GSPC) projects a roughly 17% increase from current levels by the end of 2025.
On Monday, Deutsche Bank chief global analyst Binky Chadha gave a year-end target of 7,000 for the S&P 500, matching Yardeni Research’s call as the most bullish among analysts tracked by Yahoo Finance.
In explaining his thinking, Chadha emphasized the strong state of the current economy where unemployment has remained low while economic growth has shown strength.
“For equities, strong financial stability is driven by strong growth as it affects the outlook for companies’ expected earnings and returns,” Chadha wrote. “Inflows have also been driven by an increase in the risk of food which is now very high. Of course it bears attention but the risk of food in our view should be high with the unemployment rate close to 4% and the growth of GDP at 3%, a strong combination that rarely happened. Only 6% of the time in history.”
Chadha added that past periods with similar economic conditions include the 1960s and the latter half of the 1990s which saw “stronger performance.”
From the prospective sector, Chadha, like others on Wall Street who offer a 2025 outlook, argues that the next leg up in markets is led by megacap tech amid slow earnings growth. Instead, he expects growth to “continue to moderate in 2025” and is leaning towards areas he thinks could benefit from continued economic expansion.
“On a sectoral basis, we maintain a cyclical outlook, while remaining overweight on Financials where there are more headwinds, Consumer Cyclicals and Materials,” Chadha wrote.
While the main focus in 2024 was on the signs of economic slowdown, Chadha’s team sees a cycle where different areas of expansion, such as spending money outside of technology, corporate confidence increase and mergers and acquisitions (M&A) picture. “I’m still coming.”
“US capital markets and M&A activity have been underperforming on the ongoing volatility of the business cycle, inflation, politics and geopolitics,” Chadha wrote. “Poor governance has also become clear. The combination of the company’s great faith and easy governance can lead to repetition in M&A and stock markets.”
The president of Yardeni Research, Ed Yardeni, who also sees the S&P 500 hitting 7,000 by the end of the year, told Yahoo Finance recently that part of that will be driven by some of Trump’s business administration and the return of “animal spirits.”