The S&P 500 trades at 5,930 now. It has run up 25% this year. It was up about the same amount in 2023. Many analysts believe it is overvalued and will move sideways in 2025 or suffer a much-anticipated correction like the one in 2022. The correction dropped the index 19% that year. However, one analyst expects the market to rise to 7,000 in 2025, a run-up of 18%.
The 7,000 target is the most bullish among well-known Wall St. firms. It comes from Deutsche Bank chief global strategist Binky Chadha. He has been with the firm since 2004. Before that, he worked at the IMF for 17 years. He has a Ph.D in Economics from Columbia. His reasons for the optimistic forecast are primarily due to the basics of the economy, “For equities, strong equity inflows are partly driven by strong cyclical growth as it impacts views on prospective corporate earnings and equity returns,” he wrote recently.
His “basic economic” measures are unemployment and GDP. The jobs market has had an impressive run since it jumped to 9.9% in 2008 at the bottom of the Great Recession. It was around 4% per year after that until the COVID-19 pandemic when it rose to 6.75% in 2020. From 2021 to 2023, the jobless rate was below 4% and will likely post a similar number this year.
GDP growth has been positive for only two of the 15 years ending in 2023. It will be up again in 2024.
Chadha believes these “macro” trends will spill over to global earnings and earnings expectations. Earnings are also likely to be strong because of lower interest rates. It is expected that the Fed will drop them in 2025, albeit by a small amount.
If the market does rise another 18% next year, people who hold equities will get richer. That bodes well for 2026.
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