This year, US stocks increased despite the current slowdown in the US economy. However, banks have anticipated that the US stock market may decline in the coming year due to investors’ waning confidence in technology companies’ ability to generate profits from their AI investments.
Many investors had anticipated that the US economy would slow the S&P 500, but it has soared 28% this year due to significant gains in technology equities and Donald Trump’s presidential election victory.
However, doubts regarding AI investment, along with a poor set of quarterly results, are causing investors to turn to other industries. How will the stock rally turn out?
Stocks are expected to slow down
Morgan Stanley, HSBC, and Goldman Sachs are among the ten major banks that anticipate that the S&P 500 index, the primary US equities barometer, will increase by approximately 8% to approximately 6,550. This estimation is between now and the end of the year, thus reaching new highs.
However, when the next year begins, the expectation is that the stocks will slow down. Mike Wilson, chief investment officer for Morgan Stanley, said, “We’re fighting [. . .] euphoria that has helped people buy stocks versus the realities of next year.”
Venu Krishna, a strategist at Barclays, also stated that there are “pockets of over-enthusiasm” in the industry. He explained that the technology giants have yet to demonstrate their ability to monetize their AI investments.
He added, “We are cautious because it is unrealistic for these kinds of exceptional returns to continue.”
US stocks performance since 1974
AI has been a great resource for US stocks. The US stock markets have achieved record highs this year due to the gains of tech giants such as Nvidia, which has increased by 180%, and Meta, the parent company of Facebook, which has increased by 73%.
However, there is worry regarding the potential return on the substantial investment in AI made by these companies.
In June, analysts at Goldman Sachs released a report entitled “Gen AI: too much spend, too little benefit?”
The Wall Street bank inquired whether a $1 trillion investment in AI over the next few years will “ever pay off.” Sequoia Capital, an early investor in OpenAI, the developer of ChatGPT, also estimated that tech companies will need to earn $600 billion to make up for their AI investments.
Wall Street expectations of US stocks performance in 2025
BofA predicted that the S&P will reach a benchmark of 6,666 by the end of the year, the mark of the bullish beast. The index is expected to increase by 10% from its current price of 6,050.
Also, UBS Global Wealth Management anticipates the S&P will rise 10% to 6,600 by the end of 2025.
BMO Capital Markets, on the other hand, anticipates an 11% increase in the S&P, with a price target of 6,700. Brian Belski, the chief investment strategist at BMO, hinted that there is a possibility of further gains as the Federal Reserve continues to reduce interest rates.
Goldman Sachs predicted a 9% increase for the S&P next year at 6,500 in a client letter.
However, Deutsche Bank has a Wall Street high end-of-2025 S&P price estimate of 7,000. The Binky Chadha-led strategist group expects around 16% more gains for American stocks.
Analysts led by Savita Subramanian cited lower interest rates, higher labor market productivity, and a projected lower tax rate under President-elect Donald Trump as positive factors that could lead to the increase.
Still, analysts have expressed concern that the inflationary impact of Trump’s second term in office, which could include tariffs on several countries, was still uncertain.
In addition, Deutsche’s Chadha said, “We are in unfamiliar territory right now, and everyone talks about uncertainty. But I think the uncertainty is bigger on the upside.”
This articles is written by : Nermeen Nabil Khear Abdelmalak
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