What to Expect from the US Stock Market in 2025

Wall Street analysts generally expect stocks to post another year of gains in 2025 as a strong economy and falling interest rates boost corporate earnings.
The gap between the Magnificent Seven and the rest of the market is expected to narrow as more companies begin to reap the benefits of artificial intelligence.
Small-cap and mid-cap stocks could perform well in the coming year thanks to lower interest rates, as well as an easier regulatory environment under new President Donald Trump.
Some analysts warn, however, that market volatility could increase after Trump's return to the White House given uncertainty about how his policy approach could affect the economy.

Stocks have just had a banner year, and Wall Street is optimistic that US equities will continue to rise in 2025.

The S&P 500 gained 23% in 2024 after rising 24% the previous year, its first two-year stretch of +20% gains since the late 1990s. Earnings are not expected to be as robust in 2025, but market watchers say the outlook is generally positive.

Here's some of what analysts say you can expect from the stock market in the coming year.

Corporate earnings are expected to be the main driver of stock returns in 2025.

Earnings growth has been narrow over the past two years. Surging spending on artificial intelligence and a slew of cost cuts have helped mega-cap tech profits soar. Meanwhile, the S&P 493 – or the S&P 500 without the Magnificent Seven – shrank in 2024, although JPMorgan analysts expect the group to record double-digit earnings growth in 2025.

According to Goldman Sachs forecasts, The Magnificent Seven's aggregate profit growth is still expected to outpace the rest of the index, albeit by the smallest amount in seven years.

That's one reason why equity analysts at Bank of America expect the equal-weighted S&P 500 to outperform its capitalization-weighted counterpart.

Artificial intelligence has been the buzzword on Wall Street for more than two years now, and analysts see that continuing.

“We see the construction and adoption of AI creating opportunities across sectors,” BlackRock analysts wrote in their 2025 forecast.

Goldman analysts have similar expectations. They say that the AI craze went through two “phases”: “Phase 1” focused only on Nvidia (NVDA), whose advanced chips make it a key enabler of the AI boom; “Phase 2” was a little more broad and included companies that were essential for building an AI infrastructure.

Goldman analysts predict that 2025 will bring “Phase 3,” where investors will turn their attention to companies that value AI. They expect software and services companies to be the main beneficiaries of the next phase of AI evolution, with companies named ranging from tech giants Apple (AAPL) and Salesforce (CRM) to small caps like Yext (EXT) and Box (BOX) as strategic stock picking.

Some analysts expect a small-cap and mid-cap renaissance, although they note it could easily be derailed or delayed.

Smaller companies are more reliant on floating rate debt, which means they benefit the most when interest rates decline, and the Federal Reserve is expected to continue lowering rates. They are also less likely than large companies to operate internationally, which could insulate them from geopolitical tensions and potential stress on global supply chains.

Small and mid-caps could also benefit from an easier regulatory environment under the new President Trump, whose administration is expected to challenge corporate mergers and acquisitions (M&A) is less aggressive than Biden's.

However, Trump's policies could also block or delay the small- and mid-cap rally. Economists warn that Trump's tariff and immigration policies it could prevent inflation and keep interest rates high, a problem for M&A and smaller companies' balance sheets.

Donald Trump will return to the White House in January with what he calls a “historic mandate” to break with the status quo. He has promised dramatic changes to trade policy, taxes, regulation, immigration, and government spending.

Analysts have struggled to predict how those changes will affect the economy, in part because of “the fluidity of Trump's policy positions, his unconventional governing style, and the absence of detailed, consistent frameworks guiding his statements,” Charles Schwab analysts wrote in their 2025. prospects.

What is certain is that the year will contain plenty of twists and turns. Optimism about the economy and the Trump administration have pushed stocks to high levels. They also trade at historically high valuations, which Goldman analysts note, “typically increase the size of the market decline during a shock.”

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