As 2024 draws to a close, the S&P 500 has demonstrated remarkable performance, climbing 26.7% throughout the year and surpassing 2023’s 24.2% gain. The index has achieved more than 50 record highs in 2024, with its first record occurring on January 19.
Following Donald Trump’s November victory securing his second presidential term, market analysts are carefully evaluating the potential impacts of his proposed policies. These include the extension of the 2017 Tax Cut and Jobs Act provisions, enhanced immigration restrictions, and possible new import tariffs.
Eric Freedman, chief investment officer at U.S. Bank Asset Management, emphasizes the uncertainty surrounding the incoming administration’s policies and their inflationary implications. The firm maintains a cautious approach, preferring to monitor market fluctuations while awaiting more concrete policy details.
Goldman Sachs Research anticipates continued growth for the S&P 500, projecting a rise to 6,500 by the end of 2025 – representing a 9% increase from current levels and a 10% total return including dividends. However, David Kostin, Goldman’s chief U.S. equity strategist, warns about elevated valuations, noting that the index’s price-to-earnings multiple has surged 25% over the past two years.
While Goldman Sachs maintains an optimistic baseline outlook for economic and earnings growth, they identify several risk factors for 2025, including potential widespread tariffs and rising bond yields. Conversely, they suggest that more accommodative fiscal policy or a dovish Federal Reserve stance could enhance returns.
Veteran hedge fund manager Doug Kass, known for his annual surprise predictions since 2002, has expanded his forecast list from 10 to 15 items for 2025, citing an anticipated year of unexpected developments across political, social, regulatory, economic, and market spheres.
Among Kass’s notable predictions is a severe climate disaster – a 500-year rain and flooding event causing between $250 billion to $500 billion in damages, approximately ten times Hurricane Katrina’s impact. He forecasts this will lead to a government bailout of a major property-casualty insurance company.
Regarding market performance, Kass presents a pessimistic outlook, predicting a 15% decline in the S&P 500 and a steeper 20% drop in the Nasdaq. He anticipates a more modest 5% decrease in the S&P 500 Equal Weight ETF. According to Kass, these declines will be driven by disappointment in artificial intelligence developments, elevated interest rates, increasing inflation, and slower economic growth, with technology and financial sectors experiencing the heaviest losses.
Goldman Sachs’s analysis suggests that current high valuations could amplify market downturns in response to negative events, though their base case remains optimistic about continued economic expansion and stable bond yields. The firm acknowledges that market conditions already reflect positive economic expectations, potentially creating vulnerability heading into 2025.
As investors prepare for 2025, they face a complex landscape shaped by political transitions, policy uncertainties, and varying market predictions from seasoned financial experts. The contrasting outlooks between Goldman Sachs’s cautiously optimistic forecast and Kass’s more bearish predictions highlight the diverse perspectives on what lies ahead for U.S. markets in the coming year.