Preference for the US stock market, as a result of forecasts for economic growth, trade policies and geopolitical risk. Projections for the S&P 500 between 6,400 and 7,100 points, and for official US interest rates below 4%
The outlook of the main investment banks for 2025
Forecasts for the S&P 500
JP Morgan: Moderate gains in the S&P 500, with greater inclusion and participation of companies; stabilization of official US interest rates between 3.75% and 4.0% in the summer.
Goldman Sachs: S&P 500 at 6,600 points, based on 2.7% global economic growth and business-friendly economic policies
Morgan Stanley: S&P 500 at 6,600 points, with economic growth of 3.0% in the US and S&P 500 EPS growth of 13%
Bank of America: S&P 500 at 6.666 points, with the growth of the US economy outpacing that of other developed economies
UBS: U.S. preference, S&P 500 at 6,600 points at the end of 2025, driven by solid economic growth, lower interest rates and advances in AI
Strong alignment in the outlook for global and regional economic growth, the preference for investment in the US stock market, as well as the forecasts for the positive performance of the S&P 500 and the lowering of official rates by the Fed
Conclusions and recommendations: investment portfolios balanced between stocks and bonds; stocks of high-quality companies; investment-grade bonds; equity markets with preference for the US, followed by Japan and India
The outlook of the main investment banks for 2025
In the past two weeks, reports on the outlook for the financial markets for 2025 from the main US banks began to be published and released by the press: JP Morgan, Goldman Sachs, Morgan Stanley, Bank of America and UBS.
Every year, individual investors must make an assessment of the positioning of their investments and this is the opportune time to do so, based on an assessment of the current year and the prospects for the next one.
In this article, we begin by presenting the main conclusions of a joint analysis of the various opinions, then move on to some further development on the position of each, and conclude the ideas with recommendations regarding investments.
A year ago we presented the first annual Outlook of the world’s leading investment banks, which on average pointed to the S&P 500 between 4,500 and 4,000 points and interest rates on 10-year US bonds below 4.0%.
On this date, it seems difficult for any one to materialize.
Both are higher, with the S&P 500 hovering around 6,000 points, and 10-year interest rates at around 4.3%, which is still paradoxical, given the inverse relationship between the two variables. This performance is mainly explained by higher economic growth than expected.
As usual, these exercises do not consider any changes in exogenous, current or potential factors, including changes in the geopolitical context, in particular the war in Ukraine and the conflict in Gaza.
In our opinion, it is interesting and important to consider and monitor the opinion of the big banks regarding the economy and financial markets in general.
On the contrary, we are very critical of the value of your recommendations for individual securities.
In a subsequent article, we will present our economic and financial markets vision and outlook for 2025.
Predictions for the S&P 500
Investment banks predict that the S&P 500 will be between 6,400 and 7,100 points by the end of 2025:
JP Morgan: Moderate gains in the S&P 500, with greater inclusion and participation of companies; stabilization of official U.S. interest rates between 3.75% and 4.0% in the summer.
After a year of surprisingly robust economic growth in the US of 2.4% expected by the end of 2024, largely driven by consumption, JP Morgan expects growth to normalize in 2025 to 2.1%.
It anticipates an average inflation of 2.0% in 2025, after 2.3% at the end of this year.
Trump’s re-election and Republican control of Congress could lead to significant policy changes, with tax cuts, tariff increases, less immigration and deregulation of certain sectors.
It foresees a reduction in official rates to 3.75%, well above the 3.0% forecast by the Fed.
The rise of the US stock market by more than 60% in the last 2 years has raised valuations in some sectors, leaving them more vulnerable to shocks, and above all, has caused the “imbalance” of many investment portfolios.
S&P 500 earnings growth is expected to maintain a high trajectory in the coming years, from 0% in 2023 and 9% in 2024 to 15% in 2025 and 23% in 2026.
Despite the 7% appreciation of international stocks this year, the gap with the US continued to widen.
However, there are plenty of risks, including a disappointment in Chinese economic growth, rising 10-year U.S. interest rates, a strong dollar, tariffs, and currency volatility.
The conditions that have provided good performances of the equity markets of Japan, India and Taiwan in recent years will continue.
Access here:
Goldman Sachs: S&P 500 at 6,600 points, based on 2.7% global economic growth and business-friendly economic policies
Goldman Sachs forecasts another year of solid global economic growth in 2025, at around 2.7%.
The U.S. is expected to beat expectations with 2.5 percent, while the eurozone will lag behind with 0.8 percent, a situation aggravated by the Trump administration’s new tariffs.
Inflation in developed countries will continue its downward trend, moving closer to the targets of central banks, which will continue to reduce interest rates to more normal levels.
Goldman Sachs expects the US Federal Reserve to reduce its policy rate to 3.25-3.5% from the current 4.5% to 4.75% now, until the summer, slowing down thereafter.
The European Central Bank is expected to lower its policy rate to a terminal rate of 1.75%.
He considers that there is also significant room for policy easing in emerging markets. On the other hand, it projects that the Bank of Japan will raise its policy rate to 0.75% by the end of 2025.
The forecast favors the U.S., with solid growth, cooling inflation, and further non-recessionary rate cuts, along with a range of policies that will be positive for corporate earnings.
Despite the clearly superior performance of the US, the non-US economies will also still have stable growth, falling inflation and favorable monetary policy.
Trump’s increase in trade tariffs poses a direct threat to the benign core economic forecasts of solid growth and lower inflation.
On the other hand, Republican control increases the risks of fiscal expansion, inflation, and higher terminal interest rates.
The challenges and outlook for China’s performance are still mainly domestic, while European growth will have renewed risks from Trump’s agenda.
Access here:
Morgan Stanley: S&P 500 at 6,600 points, with economic growth of 3.0% in the US and S&P 500 EPS growth of 13%
Morgan Stanley believes a stable global economy will benefit equity and bond markets, although increased uncertainty around U.S. tariffs and immigration policy could jeopardize recent market gains.
The global economy is expected to grow 3.0% in 2025, and 2.9% in 2026, slowing slightly as uncertainty increases and tariff and immigration policies in the US begin to slow activity.
Inflation continues to normalize, alleviating a key concern for policymakers and investors, but progress may slow and vary across countries.
Europe’s growth may be cruising at around 1%, but global trade disruptions could be a headwind.
China continues to struggle with deflation, tariffs pose a risk to the country’s industrial sector, while consumption and stimulus may remain insufficient.
Japan continues to move away from its deflationary decades, with an established wage inflation trend and inflation of around 2%.
It expects the 12-month PER multiple to contract slightly from 22.2x to 21.5x, remaining at a premium to the 10-year average due to the period of above-average earnings growth and accommodative monetary policy.
It anticipates earnings per share growth of 13% in 2025, and another gain of 12% in 2026, with rates reduced next year and economic growth indicators improving.
Morgan Stanley is also bullish on Japanese equities, while the company has lowered its rating on European equities to neutral on tariff risks and the region’s exposure to China.
Trade tensions make emerging market equities their least preferred market.
The company expects 10-year U.S. Treasury bond yields to fall from 4.30% to 3.50%.
Political uncertainty in the U.S. will continue to be a factor around the world, with deregulation as potentially positive, while tariffs and immigration restrictions could disrupt markets in late 2025.
Access here:
https://www.morganstanley.com/ideas/global-macro-economy-outlook-2025
https://www.morganstanley.com/ideas/global-investment-strategy-outlook-2025
Bank of America: S&P 500 at 6.666 points, with the growth of the US economy outpacing that of other developed economies
It considers that policy changes, including tariffs, fiscal policy and the regulatory environment, should have almost as much impact on the rest of the world as they do on the US.
It estimates US GDP growth to be 2.4% in 2025 and 2.1% in 2026, partly due to improved productivity, which is more favourable than in the rest of the world due to a new fiscal policy mix.
It predicts that the Federal Reserve will cut interest rates by 25 basis points at its March and June meetings and then pause.
It sees interest rates on 10-year US Treasury bonds around 4-4.5%.
It considers uncertainty about U.S. trade policy likely to hurt emerging markets.
It anticipates a 7% decline to the Stoxx 600, followed by a recovery close to current levels.
It expects China’s real GDP growth to slow to 4.5% in 2025, and that the stimulus to domestic demand will offset any impact of tariffs with a lag.
UBS: Preference for the US, and S&P 500 at 6,600 points at the end of 2025, driven by solid economic growth, lower interest rates and advances in AI.
UBS begins by recalling the context of the markets in recent years, noting that since the beginning of the 2020s, global equity markets have appreciated by about 50%, nominal GDP has increased by more than 30% and US corporate profits have almost doubled.
All this despite unprecedented global lockdowns, the outbreak of wars in Eastern Europe and the Middle East, and the biggest increase in interest rates and inflation in decades.
UBS believes the S&P 500 could reach 6,600 points by the end of 2025, driven by solid U.S. growth, lower interest rates and advances in AI.
It expects China’s growth to slow, and reactive fiscal stimulus measures are unlikely to be sufficient to fully offset the impact of trade tariffs and structural challenges.
He expects India to continue to show more robust growth.
In Europe, it sees uneven and moderate growth, but it is expected to improve, due to wage growth and falling interest rates.
It anticipates a decrease in money market investment returns from further central bank rate cuts. Outlook attractive returns and potential for capital gains on investment grade bonds, with expected total returns of 5% in US dollars.
It continues to envision opportunities for transformational innovation through artificial intelligence, energy and resources.
Access here: https://www.ubs.com/global/en/media/display-page-ndp/en-20241121-year-ahead-2025.html
Strong alignment in the outlook for global and regional economic growth, the preference for investment in the US stock market, as well as the forecasts for the positive performance of the S&P 500 and the reduction of official rates by the Fed
The conclusions common to the various perspectives of banks are:
Maintenance of global economic growth and in all economies, advanced and emerging, to good levels in the US, lower but rising in Europe, and below average in China and Latin America.
Continued decline in advanced economies towards the 2% target, achievable in 2025 in the US and Europe.
Interest rates on 10-year US Treasury bonds will continue to fall and are expected to fall below 4% by the end of 2025, with interest rate cuts by the Fed in the first half of the year.
The dollar is expected to remain strong.
The dominant economic theme will be the impact of Trump’s economic policies, with control of Congress, on the US and the rest of the world, in particular on Europe and China.
All banks are positive on equity, government bond and cash investment in developed economies, which will benefit from economic growth, lower inflation and interest rates, as well as growth in corporate earnings and increased productivity.
Conclusions and recommendations: investment portfolios balanced between stocks and bonds; shares of high-quality companies; investment-grade bonds; stock markets mainly the US, complemented by Japan and India
These forecasts recommend that investors maintain balanced portfolios by combining investments with stocks of quality and solid companies with investments in investment grade bonds.
Considering these forecasts, the recommendations are as follows:
Maintenance of investment allocations in pension plans.
Maintaining moderate exposure to longer-term US and European government bonds than average, respectively for US and European investors, benefiting from lower interest rates.
Preference for investments in US and Japanese equities, combining widespread investments in the main indices with the selection of thematic investment funds and individual securities associated with the ongoing economic transformations.
